Changes in consumer values and more efficient retailers continue to drive consolidation in the retail industry. Marketplace Advisors has analyzed retail sales since 1990 to determine dominant trends in the industry. The retail sector is a mature industry that has been experiencing significant consolidation over the past decade. Labor and middlemen continue to be squeezed out of many retail concepts to make them more cost efficient.
Retailers that have provided clean, well-stocked shelves in a self-service warehouse setting have been driving much of the growth. Wal-Mart has been the leader, redefining how goods come to market and how we shop. Shopping based on price has gone from being a low- to middle-income activity, to being what smart well-educated shoppers do as well.
The bipolarization of our society into two major demographic groups, higher income and lower income households, is driving changes in retail formats. The upper 20% of households in the United States consume more goods and services than the bottom 60% of the households combined. People in the upper 20%, like all consumers, are driven by value. However, with their additional discretionary income, they require higher-quality goods and additional services.
Everyone digs discount
Discount department stores have positioned themselves as convenient, low price, one-stop shopping meccas, appealing to all demographic groups. They are 30-acre destinations with more than 200,000 sq. ft. of space, about 25% of the size of a typical regional mall. Discount department stores are retail black holes capturing sales from almost everything in their path. They have out-positioned mom-and-pop stores, regional retailers and conventional department stores.
Discount department store sales have grown in the United States from $84 billion in 1990 to a projected $249 billion in 2002. They have captured the largest share of non-auto retail sales growth in this time period (14%). This category has been mainly driven by Wal-Mart and Target. As both continue to expand with their supercenter formats, the grocery industry now finds itself under attack.
The grocery industry has also experienced significant growth since 1990, growing from $348 billion to a projected $480 billion in 2002. However, low-price, one-stop supercenters, warehouse clubs and freestanding drug stores have taken market share away from the grocery stores.
None of the grocery chains wants to be across the street from a supercenter, but grocery stores that offer a high level of service such as Publix and Whole Foods, are best positioned to weather the supercenter invasion. Grocery stores that cater to middle- and low-income consumers and are focused mainly on price are most vulnerable to the supercenters.
The restaurant sector has seen sales grow from $179 billion to a projected $313 billion. Growth has been spurred by the consumer's active dual-income lifestyle. Full-service restaurants cater to upper income households; they are labor-intense enterprises that pamper their customers. Fast-food restaurants provide low prices and convenience.
However, the recent trend to mixed-use destination projects that cater to high-income consumers has created new opportunities for full-service restaurants such as The Cheesecake Factory, Houston's and P.F. Chang's.
Time is precious
The mail order business has established itself as a significant retail venue in recent years, with the Internet becoming a channel for sales. It has experienced strong growth, growing from $27 billion in 1990 to a projected $124 billion in 2002. Our culture's fast-paced lifestyle has put pressure on our overextended schedules. We have less time and shopping from our own homes has grown in appeal.
With increased pressure from our modern lifestyle consumers are retreating to their homes. Building material stores have seen sales grow from $95 billion in 1990 to a projected $202 billion in 2002. Most of this growth has been captured by The Home Depot and Lowe's Home Improvement Centers. Consumers are making their homes sanctuaries, with more space and more amenities. Changes in technology have also created demand for home offices and media rooms.
Freestanding drug stores have positioned themselves as giant convenience stores, offering you everything from filling a prescription to buying a gallon of milk. Sales have grown from $71 billion in 1990 to a projected $144 billion in 2002.
They are located on high-priced corners with convenient access and are typically within two miles of a suburban shopper's home. Walgreens has been the dominant player in this category. Drug stores are well positioned for the future, offering aging consumers convenience and health products to keep them young and active.
Electronic and computer stores are driving the latest in media technology to the consumer. They cater to high-income well-educated shoppers. Sales have grown from $33 billion in 1990 to a projected $86 billion in 2002. They offer the consumer a combination of price, service and selection.
Footsteps not to follow in…
Two retail sectors that have performed extremely poorly since 1990 include two mall-based store types — conventional department stores and shoe stores. Conventional department store sales have only grown from $51 billion in 1990 to a projected $58 billion in 2002, not even keeping up with inflation. Shoe store sales have also had poor growth, increasing from $18 billion in 1990 to a projected $22 billion in 2002.
Time-sensitive consumers have been focused on concepts that offer convenience and price, leaving the mall out-positioned. High-income consumers are also focused on more experience-based leisure activities such as entertainment, dining out and travel.
Changes in our values and lifestyles will continue to drive changes in the retail industry. The next few years will bring more consolidation as value leaders capture market share. Wal-Mart has been the leader in this transformation by focusing on giving consumers low everyday prices in a convenient setting.
The high-income household, while valuing efficiency, is also driving demand for new leisure concepts that are creating places where people come to interact with each other and feel part of a community. This has created demand for leisure lifestyle centers and town center projects.
David Marks is president of Marketplace Advisors Inc., a real estate consulting company that specializes in computer demand modeling, concept development, and marketing of commercial mixed-use projects.