The US retail sector, and more generally in the world, is going through a phase of profound change and innovation: the exponential growth of e-commerce and an increasingly informed consumer thanks to the countless digital tools available are putting a strain on the global retail world. As reported by Atraius, starting from the end of 2018 many traders of consumer durable goods have begun to reap the benefits of the investments made for greater cost efficiency and an improvement in the customer experience, investing in staff training and implementing a multi-channel strategy integrated, through digital innovations and restructuring of points of sale. Together with a more solid economy and the good trend in consumption, in the USA this will favor an increase in the operating margins of companies. According to preliminary estimates of the National Retail Federationin fact, during 2018 retail sales grew by 4,6% compared to the previous year, reaching 3,68 trillion dollars.
In 2019, analysts expect a further increase of around 4%, with a 15% growth in online sales and 2-3% in the case of street shops. While now representing 15% of the total, the share of online sales is expected to rise to around 20% over the next five years. In this scenario, the household appliances segment (+8%) is supported by the growth in household income and the solid performance of the real estate and construction sectors. And while rising raw material costs and steel import duties have driven up operating costs and reduced margins and profitability, companies are raising prices and implementing initiatives and programs to reduce costs and improve productivity in order to increase profit margins. The US furniture market has continued to grow since 2009 and sales should follow an upward trend at least until 2023, favoring consumer spending at the expense of street vendors.
In the Old Continent, and more precisely in the Netherlands, according to theDutch Statistical Office (CBS) the turnover of the non-food retail sector grew by 1,7% last year. Sales of DIY items, kitchens and coatings increased by 2,3%, while the furniture and household appliances segments grew by 2,1%. However, the turnover of consumer electronics stores continued to register a decline of 0,8% (compared to -2,1% in 2017). Profit margins in the non-food retail sector increased in 2018, but still remain low. In 2019, non-food retail growth is expected to slow to 1,5%, in line with the reduction in private consumption growth which is expected to reach 1,9% (compared to +2,5% in 2018).
According to industry association data CTA (Consumer Technology Association), in 2018 the turnover of the US consumer electronics retail sector reached a record figure of 377 billion, with a growth of 6% compared to the previous year which should also continue in 2019 (+5%). In 2019, analysts anticipate a slowdown in mergers and acquisitions in the consumer durables retail sector due to the high number recorded in recent years and for reasons of balance sheet consolidation. While online-born brands expect to open around 850 stores in the next 5 years, traditional street merchants closed and opened around 7.000 and 3.000 stores respectively last year: the closing process should then continue, partly offset by the expansion of DTC (Direct To Consumer) brands and other niche operators better equipped to compete in this context.
Payments in the US retail sector take an average of 60 days; the number of non-payment notifications has remained stable over the last 12 months and a significant increase is not expected in 2018. However, the level of insolvencies in the sector remains high. In the last 18 months, the most important bankruptcy cases have involved the retail sector: if we consider the 10 largest bankruptcy cases, 5 have involved this sector. In Holland, the European country where retail remains at the most dynamic levels, banks are rather reluctant to grant loans to the sector. Payments in the Dutch non-food retail sector take an average of 60 days; after the increase recorded in 2018, the number of missed payments should remain stable. Insolvencies in the non-food retail sector are expected to remain stable or slightly increasing, in line with the general forecast of a moderate 2% increase in insolvencies in the Netherlands after several years of decline.
In Holland iThe degree of success of shops in the non-food retail sector is uneven: pharmacies benefit from a positive trend, while consumer electronics continues to show a decline. Revenue growth in the apparel segment is highly dependent on climatic conditions and faces stiff competition from online retailers. The number of high street shops has drastically reduced in recent years and many retail chains have moved towards online sales channels; at the same time, the number of new foreign-owned chains has increased on the market, especially in the clothing, DIY and kitchen segments. Competition remains particularly strong in the already saturated consumer electronics market, where prices have already bottomed out in several product categories and the number of retail chains has declined significantly over the past decade. Despite the general decline in sales, major players in the e-commerce segment have recorded such high levels of growth in the last two years that it seriously threatens the survival of well-established traditional companies. Giants such as Amazon and Alibaba are increasingly expanding their presence in the local market, contributing to increasing pressure on prices and profit margins of high street shopkeepers.
Globally, due to the longevity of the current economic cycle it is possible that there will be a slowdown in spending in the next 2 years. This would impact discretionary spending such as apparel, appliances and consumer electronics, rather than other categories, such as groceries. In particular, highly leveraged retailers who have made heavy investments to adapt to new market conditions could be exposed to pressure on profit margins. Hence, the downside risks in retail come from rigidity in the labor market and growing shipping costs, without forgetting that any escalation of trade disputes between the US and China would have a negative impact on those companies that import a significant portion of their products from Beijing.
