Answer to Question #310515 in Management for Asataluli

Question

How changes in the industry's long term growth rate affect retail business industry?

Answer 1

Retail trade is a key avenue of consumer spending and makes a major contribution to the labor market as well. However, the sector is undergoing some changes, which have impacted total sales, revenues of different store types, and employment. And as e-commerce takes up an ever-larger share of sales, the mix of occupations, wage rates, and the industry’s relationship to the economy likely will all change. The beginning of these changes is evident in the slowdown in employment and relatively slow growth of the sector’s revenues, features that may continue and even intensify in the future.

The retail life cycle follows a classic S-curve. Successful companies grow quickly in their early years by opening stores and penetrating new markets. Once the most attractive sites have been exploited, they add stores in increasingly less attractive locations. As their store networks become ever more dense, new stores begin to cannibalize the sales of existing ones, reducing the net sales gain for the entire chain.

For retailers, nobody tells them that their chain’s high-growth days are over and it’s time to switch to a maturity strategy. To detect when they should begin transitioning from high growth to slow growth, they need to track the right metrics. Knowing exactly when new stores have become unprofitable is very difficult. It takes time for a new store to mature; consequently, early sales may not be indicative of eventual sales. Also, extenuating factors, such as economic downturns or natural disasters, can have a huge temporary impact on sales.