See the complete list of trends that we analyze.

1) Introduction to the Retail Industry

Retail, with more than 15 million employees in America alone, is one of the largest industries in the world by number of businesses and number of employees. Retail sales in the U.S. (total retail sales include the categories of gasoline, automobiles, and food service, as well as merchandise) totaled an estimated $4.300 trillion in 2009 according to Plunkett Research. Sales were $4.413 trillion in 2008 and $4.482 trillion in 2007.
Retails sales in 2008-2009 were driven partly by deep discounting. Meanwhile, automobile sales saw a disastrous drop off, with total sales of cars and light trucks in 2009 estimated at 10 million, and 2008 at about 13.2 million, down from 16.5 million in 2007 and 17.5 million at the peak in 2005.
Retail sales in 2008-2009 were affected by several factors:

• Sales of both new and existing homes were very slow. While homes themselves are not counted in retail sales figures, buyers of these homes are a significant force at retail stores where they purchase furniture, appliances, linens, consumer electronics and garden supplies to fill up their new residences. Likewise, builders and remodelers are a strong factor in retail sales, when they purchase supplies, materials, appliances, etc. at retail outlets. The slowdown in building and remodeling led to low levels of sales at home centers such as Home Depot.
• Another factor was home mortgages: From 1998 through part of 2006, Americans were refinancing their existing home mortgages in record-setting numbers. In doing so, they took advantage of very low mortgage interest rates and very easy lending requirements. Many homeowners also increased the balance on their mortgages, taking advantage of rapidly rising home values that increased their borrowing power. Borrowing against home equity lines of credit was also high, and much of that money went to retail purchases. Homeowners were spending this cash windfall freely, driving up retail sales in many categories. However, by late 2006, the slowing real estate market, followed by tougher lending standards, meant that the party was over. This definitely had a negative effect on retail sales.
• Another major negative impact was the growing number of homes going into foreclosure as their owners were unable or unwilling to meet monthly payments. Many of these foreclosed homes are part of the subprime mortgage fiasco that is rocking financial markets, where borrowers have poor credit or inadequate income. Also, a large portion of foreclosed homes are those subject to rising monthly payments due to adjustable rate mortgages.
• Extremely high unemployment, topping 10% in late 2009, has limited the ability of consumers to spend.
• Equally important, Americans have entered a new anti-consumption, pro-savings mindset that will dramatically change the retail industry for the long term.

Negative factors that will impact the retail sector in 2010:

• Consumer debt levels remain high
• High health care costs continue to be a challenge
• A continuation of depressed conditions in the housing market means low home equities and limits the ability of consumers to sell their houses
• A high level of home mortgage foreclosures
• High unemployment levels and a very difficult environment for job seekers
• Tightened lending standards that make it more difficult for consumers to obtain credit, including a pull back in lines of credit available on credit cards and home equity loans
• Low consumer confidence
• Consumer tastes and expenditures influenced to a growing extent by LOHAS, a trend toward purchases that support “Lifestyles of Health and Sustainability.” Consumers will be more conservative going forward, saving more while spending less. When they do spend, they will be focusing to a growing extent on high-value items with long life, low impact on the environment and low energy consumption. Items that promote a healthy lifestyle will receive a growing focus.

Meanwhile, competition among retailers has never been tougher. A retailer without a significant competitive advantage doesn’t stand a chance. Superstores are battling each other on every major corner while direct marketers (including catalogs and online sites) are stealing customers from stores. Online selling at deep discounts is even making immense inroads into major consumer purchases such as jewelry. Many retailers have been driven into bankruptcy recently, including Sharper Image, Linens ‘n Things, Bombay Co., and mail order firm Lillian Vernon, and more will follow.
Vacancy levels are higher at malls and shopping centers than they have been in years, and there are very few major chains that are currently expanding.
Direct marketing sales of all types fell to $1.74 trillion in 2009, down from $1.95 trillion in 2008. 2010 sales are expected to grow by 3.5% to $1.80 trillion
Growth in online shopping has been driven by two factors. First, the number of fast Internet connections in U.S. homes and businesses leapt to about 150 million by late 2009. These connections make buying online faster and more interactive. Next, there’s the savvy marketing of online giants like Amazon.com (with more than $19.1 billion in 2008 revenues, up dramatically from $14.8 billion in the previous year), as well as the e-commerce efforts of traditional retailers such as Home Depot and Wal-Mart. These fast Internet connections are extremely important, even at the office, since a large number of U.S. workers take time out to shop online from their desktops. Analysts at eMarketer project 2009 online sales to fall 0.4% to $133.1 billion. The fall follows growth of 4.6% in 2008 and 19.8% in 2007. For 2010, eMarketer projects a 9.8% increase in online sales to $146.1 billion.
All current trends point to a continued tough time for retailing. Revenues and profits at retailers for 2009-2010 are going to be relatively low. Sales of cars and luxury items were dismal in 2009 and are likely to remain slow in 2010. Among the rare bright spots are Wal-Mart and Costco, where consumers know they can find everyday low prices on high quality merchandise.