The Business of Retail: what is it?
- Kendal Ann
- Jun 24, 2020
- 7 min read
What do you think of when the word "retail" is spoken? Is it fashion, shoes, clothes, or food? In fact, retail comprises all of these categories and more. The retail industry encompasses a vast array of goods and services, and it has its own unique set of norms. The business of retail is complex and ever-changing.
The main driving force of this website and blog is to educate. I believe it is important to outline what I regard as the retail industry in order to further understand the relationship between the topics of this blog. My definition follows what the United States Census Bureau outlines as the retail industry; however, I also have looked into how the Australian market defines the industry.
The following excerpt is from my dissertation, and the data is from 2019 and earlier. COVID-19 has caused numerous disruptions to the retail industry, which I highlighted in my previous blog post that you can find here. The effects from COVID-19 will be felt for a very long time, and I believe by the end of 2020 the retail industry will be very different.
The United States Census Bureau defines a retailer as any business that sells goods directly to consumers in small quantities during the last step of the distribution of merchandise [1]. The US Census releases the Advance Monthly and Monthly Retail Trade Surveys in addition to the Annual Retail Trade Survey and the Quarterly E-Commerce Report.
The US Census separates the sector into two main types of retailers: store and non-store retailers [2].
Store retailers have a fixed point-of-sale where they are able to display large amounts of merchandise, and they are designed to attract a large volume of customers, which is typically the general public but may also serve small businesses and institutional clients [2]. The first eleven subsectors of retail trade are classified under store retailers, i.e., NAIS 441- Motor Vehicle and Car Parts, 445- Food and Beverage Stores, 452- General Merchandise Stores, and others. [2]. The criterion for these subsectors is based on one or more of the following: capital requirements, human resource requirements, merchandise line, or trade designation, when specific merchandise line cannot be identified, i.e., pharmacies, department stores [2].
The second sector is non-store retailers. Non-store retailers also serve the general public, but they do not have a fixed point-of-sale [2]. Infomercials, direct-response advertising, door-to-door solicitation, catalog sales, street vendors (except food), and vending machines are methods used by non-store retailers [2].
It is to be noted that even though wholesalers participate in the resale of goods, which is the primary characteristic of the retail trade sector, they are not characterized as retail trade [2]. Wholesalers do not service the general public or a high volume of walk-in customers [2]. Data from the eleven subsectors of store retailers and the subsector of non-store retailers collected by the US Census Bureau from the years 1992-2018 are displayed in Figure 1.
Figure 1: US Retail Trade Data
While the data from the US Census Bureau in Figure 1 shows the overall trend month-to-month for the retail sector in the US following a calendar year, it does not follow the retail calendar. The United States National Retail Federation issues the retail sales and merchandising calendar, where the fiscal year starts in February and ends in January [3].
Widely used across the United States, the retail calendar, or the 4-5-4 calendar, allows sales to be compared by a month-to-month basis by dividing the year into months based on 4 weeks – 5 weeks – 4 weeks [3]. Created in the 1930s and widely accepted in the 1940s, the 4-5-4 calendar was developed due to the inaccuracy of sales data following the straight calendar year [3]. By following this calendar, the same number of Saturdays and Sundays are in the same comparable month year-to-year, which is essential to understanding sales figures since Saturdays and Sundays increasingly have the most significant percentage of sales per week [3]. Additionally, the retail calendar allows for holidays to be aligned year-to-year [3]. By conducting these adjustments every five to six years, there is a 53-week year that accounts for the leap year [3]. Sales are subsequently adjusted the following year by dropping the first week of the fiscal year to ease comparability and align holidays [3].
The NRF's monthly and annual reports are based upon the same US Census Bureau data; however, the NRF does not include automobile dealers, gasoline stations, or restaurants in their figures [4]. In the most recent annual report released 5 February 2019, the NRF forecasts that online sales will continue to grow by 10-12% in 2019 and growth in retail sales to be between 3.8-4.4% [5]. NRF Chief Economist Jack Kleinhenz believes the economy is in a good place, and consumers are in better shape than previous years [5].
Some experts have coined the term "retail apocalypse" to describe the current retail landscape in the US [6]. The stores that have shaped the retail industry are no longer operating to the capacity they once were. However, the so-called retail apocalypse does not address the other aspects of a relatively healthy retail economy [6]. When analyzing the US retail industry, reports mainly showcasing a negative, sensational perspective has gained exponential circulation; however, they do not reflect the truth about the industry [7]. 8,575 stores have opened, and sales have increased by $565.7billion since January 2017 in the United States retail sector [7]. It is true that not all parts of the industry are profiting. Department stores and Specialty Softgoods (apparel stores) have shown a decrease in sales and a drop in store counts [7]).
Globally, seismic shifts are changing the retail landscape, mainly due to the ever-evolving improvements of the Internet [8].
Stores no longer appear in the traditional store format; they are multichannel [8]. Customers now have the option to visit retailers in different ways, i.e., gather information online, place phone orders, purchase off their mobile phones [8].
The Australian Bureau of Statistics conducts the monthly Retail Business Survey where the value of turnover, which includes all retail sales, including online and in-store, wholesale sales, goods and services tax, repairs, meals, hiring of goods, and commissions from agency activities, is estimated by industry and state and territory [9].
Retail trade in Australia is classified into two levels, industry group and industry subgroup [9].
The six industry groups include food retailing, household goods, electrical and electronic goods, clothing, footwear, and personal accessory, department stores, other retailing, and cafes, restaurants, and takeaway food services [9]. The scope of the Retail Business Survey includes all businesses that sell goods predominantly to households [9].
Australia is not immune to the sensational reports regarding the state of the retail industry, either. Current reports are stating that Australia is suffering worse than expected regarding retail spending, and retail spending is at its weakest in 28 years [10]. As of September 2019, retail sales growth is 2.5% over the last year [10]. Economists state that retail sales volume is lower by 0.2 percent than last year and warn that the last time volume fell was in the early 1990s recession [10]. However, it can be argued that increased retailing spending and decreased sales volume shows that consumers are still shopping but are spending their money differently. Increases in sales volume have come from food retailing and cafes, restaurants and takeaway services, and decreases have come from clothing, footwear, and personal accessory and department stores [10].
As you can see different countries have their own definitions of what qualifies as the retail industry and what metrics measure success. As an American, I refer to the definition by the US Census Bureau mainly because that is where my career in retail started and my degree in Retailing is from an American university.
While I have been working in the industry for the past three years in Australia, I have not seen any major differences on a day-to-day basis. In general, Australian retailers use the same retail calendar as the United States, but there are a few differences depending on the brand. I have worked for companies whose week runs Monday to Sunday, and I have worked for others that run Sunday to Saturday. Australia has more public holidays and different holidays that are unique to the country - such as Boxing Day, Melbourne Cup Day, and the Queen's Birthday.
At the time of writing my dissertation, I had confidence in the state of the retail industry; but as I stated earlier, COVID-19 has presented new challenges that will cause changes. It will be very interesting to see what happens by the end of 2020 and even what happens in 2021. Recently, I have heard of many brands here in Australia that will be closing stores and downsizing. Shopping malls will change with the new regulations and general awareness of hygiene.
There is one thing that I have always believed - the retail industry will always be around. People love to shop - that will never change. The shopping experience may change, but there will always be a way to sells goods to the public. I will say this - it is going to be very interesting to watch!
What predictions do you have for the retail industry? Comment below!
Resources:
[1] Swartz, R., Bucchioni, P., & Census Bureau. (2009, January 16). US Census Bureau Retail Trade Definitions page. Retrieved November 6, 2019, from https://www.census.gov/retail/definitions.html
[2] US Census Bureau. (2019, November 15). Business and Industry. Retrieved November 2019, from https://www.census.gov/econ/currentdata/dbsearch?program=MARTS&startYear=1992&endYear=2019&categories=44X72&dataType=SM&geoLevel=US&adjusted=1¬Adjusted&errorData=0
[3] NRF. (n.d.). 4-5-4 Calendar. Retrieved November 2019, from https://nrf.com/resources/4-5-4-calendar.
[4] Shearman, J. C. (2019, October 16). September retail sales grew 4.5 percent over last year. Retrieved from https://nrf.com/media-center/press-releases/september-retail-sales-grew-45-percent-over-last-year
[5] Shearman, J. C., & Shay, M. C. (2019, February 5). NRF says 'state of the economy is sound' and forecasts retail sales will grow between 3.8 and 4.4 percent. Retrieved from https://nrf.com/media-center/press-releases/nrf-says-state-economy-sound-and-forecasts-retail-sales-will-grow
[6] Mende, M., & Noble, S. (2019). Retail Apocalypse or Golden Opportunity for Retail Frontline Management? Journal of Retailing, 95(2), 84–89. https://doi.org/10.1016/j.jretai.2019.06.002
[7] Holman, Lee, & Buzek, Greg (2019), Retail’s Renaissance, The True Story of Store Openings/Closings. [online]. IHL Group Report. August 2019. Available at: https://www.ihlservices.com/product/retails-renaissance/
[8] Sorescu, A., Frambach, R. T., Singh, J., Rangaswamy, A., & Bridges, C. (2011). Innovations in retail business models. Journal of Retailing, 87, S3-S16. doi://dx.doi.org.ezproxy.bond.edu.au/10.1016/j.jretai.2011.04.005
[9] Australian Bureau of Statistics (ABS). (2019, November 4). 8501.0 - Retail Trade, Australia, Sep 2019: Explanatory Notes - Explanatory Notes. Retrieved November 2019, from https://www.abs.gov.au/Ausstats/abs@.nsf/exnote/8501.0
[10] Chau, David. (2019, November 4). Retail slumps to “weakest” level since 1990s recession as tax cuts fail to stimulate consumer spending. ABC Premium News. Retrieved from https://search.proquest.com/docview/2311739583
Comments