It is common knowledge that when the economy is squeezed tight, spenders will usually pull in their belts a notch or two, so to speak. The first thing that gets left on the shelves is ‘luxury’ goods and this can mean anything from electronic goods and furniture to high end groceries and the like.
The outlook for stores which sell predominantly high end goods then is not looking so great at the moment. Although most consumers ‘want’ new goods, the ‘need’ for these goods is questionable. Consumers got burned by credit card companies that seemingly handed out store cards like candy. However, the excessive rates of interest finally hit home and consumers, who became a little savvy about their spending habits, started to migrate to no-credit offers on new cards. By trying to pay off their debts quickly, the only place they could save money was on purchasing consumer goods and this has certainly had a knock on effect all across America.
The advent of the internet, and the ability for the consumer to buy direct from online stores etc, means that big-box stores may well be going out of fashion. Indeed, commercial centers where big-box stores have attracted smaller retail outlets, have started to suffer with the closure of some well know brands. Blockbusters, for example, could be found in any shopping center but, since their demise, there is a slow uptake of that particular space. The more empty shops there are, the fewer visitors that center will have and the downward spiral in visitor numbers alone has to have some effect on the larger stores.
The economic downturn has also resulted in many people losing their homes and the need for rental accommodation is on the rise. Some stores are looking to re-zone their commercial properties to include rental apartments etc. However, getting permission to do this is somewhat difficult. The government agency that sanctions change of land use approvals is not happy since this will involve a drop in revenue for them.
Several big-box companies are bucking the trend of the downward spiral. Target (TGT), for example, did better than anticipated in the last financial year. In the last four quarters it has surpassed expectations – but this is about to change as spending goes down after the holiday period. There may be tough times ahead for this well known company.
Wal-mart (WMT), in an effort to attract customers, actually hurt its own bottom line with extreme price cuts. Disappointing results will mean that the planners have to go back to the drawing board if this company is to survive.
Costco (COST) is a membership style outlet which has grown to enormous proportions. Having more than seventy million members, with a 85% renewal rate, it is difficult to see what this store can do to improve its bottom line. Many would say ‘advertise’, but this seems unnecessary since most new store openings are inundated with consumers. It might do well to curb its ‘going international’ ambitions though until the rest of the world begins to recover from the deepest recession it has seen since the early twentieth century.
They have embarked on their virtual store quite well so, in this instance, a little more advertising to bring virtual visitors may well be all they have to do to increase business.
Sears Holdings Corporation (SHLD) - owners of Kmart and Sears of course - is obviously in dire trouble. It seems that if iconic stores like these are closing down a hundred and twenty stores, what hope to other stores have?
It could be that these stores did not move with the times. Customer loyalty is really a thing of the past and, if the consumer only has x amount of money to spend, he wants to get the best deal that he can. Sears stores in general have taken on a tired look and it would seem that the management strategy was to squeeze as much profit out of the consumer rather than give them an enjoyable shopping experience. This is certainly one of the places where they failed miserably.
Although some of their product lines are high end and exclusive, the consumer does not want to visit the store to buy them. This is a Catch 22 situation that must be resolved if they are to recover. Indeed, they may well sell these favored products through other stores in the near future and this may well be their one and only saving grace.
The Kmart section could well be finished completely because there is far too much competition with Costco, Wal-Mart and Target, to name but a few. The company may also want to emerge into the twenty first century with a much tighter digital presence on the internet with an online Sears Catalog. There are too many products to wade through to get to the good stuff!
Home Depot (HD) is another outlet that seems to be on the rise with a thirty two percent growth rate in the last quarter alone. One may assume that this is because people are choosing to upgrade their current homes instead of moving from one house to another. Indeed, this is a case of the store being in the right place at the right time. The rise in stock price could also herald the end to the housing crisis which hit many states over the past few years but this will become apparent in the not too distant future.
Lastly, the end may well be in sight for the big-box store as we know it. Unless these companies learn how to diversify and make better use of their huge warehouse style buildings, perhaps by making smaller retail units within the larger one to generate rental income, the trend to shop at places that puts the consumer’s shopping experience top and front is surely going to put some of them completely out of business. Some larger stores moved with the times while others just stagnated. This is where the problem started!
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