Retail Industry in Last Ten Years - Research Paper Example

?Retail industry in last ten Years The retail industry has evolved through major changes in the last decade. The industry has proved to be a major source of employment in countries like US and the nature of the overall operation of the industry has undergone rapid changes. In spite of the recession faced in US, which hit them badly, the retail sector was the one which was less affected. The paper studies in detail regarding the major changes which the industry has encountered and also studies the operation of few of the key players of the global brands like Walmart, Costo. The paper also analyses the role played by the mergers and acquisitions which had led to successful operation of the few big organization in the retail industry. Changes in the retail market: The general overview regarding the retail market has changed considerably over the last ten years. Originally the retail market signified a clothing market which primarily involved a made to order market, but in recent time, the dimension changed and it emerged as a ready to wear market. The standard practice of the retail market involved customers flipping through the product catalogue, selecting the color, size, and the texture of the clothing which they desired to purchase and then the customers had to wait for the sewing process of the clothes to be complete before they received the delivery of the final product. However in the era of 21stcentury, the multinational organizations have stepped in the market and the outlook of the retail market changed with large sized stores where the customers were offered various products under a single roof. The retail industry in the present times comprises of products other than clothing and is primarily segregated into two segments which are hard and soft. Under the hard segment, the goods include electronics, appliances, and furniture whereas the soft segment deals with clothing, apparels and products of fabric. The increase in product under the retail chain has also strengthened the competition between the top organizations in the retail sector. Another major change which has evolved in the retail market is the conversion of the departmental stores into big apparels. Before 1999, the departmental stores in US were facing a major problem in the business due to loss of sales and in order to revive their market condition, the change in strategies was adopted by the store owners. The period from 1999 to 2005 witnessed a major downfall in the sales of the departmental stores whereas; the sales figure in the warehouse chains and the clothing stores took a major leap. The cause of the failure of department stores was many. The change in the lifestyle of the people was one of the primary causes. The lifestyle of the people living in suburbs encouraged for the creation of the malls. Consumers preferred to shop in the areas near the localities where they lived and the down town departmental stores were soon out of fashion. The shopping malls saw the emergence of big brands under the same place and were successful in gaining the attention of the customers. The overall fashion trends of the customers were also changed dramatically and the branded retailers were successful in addressing the needs of the customers at an affordable price. The retail industry witnessed a change in the modes of payment also in the past decade. The customers of the 21st century prefer to opt for non-cash payment and the payment by debit and credit card has made shopping more easy for the customers. The number of payment by cards in the retail sector rose to 5.3 million in the year 2003. The advancement of internet also has changed the mode of operation of the big organization in the retail sector (Plunkett, 2008). Over the last decade most of the reputed organizations have implemented the online selling techniques by the improvement of the web portal. The websites of the respective organizations are flooded with product information and the customers can easily purchase the product of their choice by making an e-payment and the products are delivered to them. The large retailers operating in the market also have renovated the supply chains, the inventory management system and major marketing strategies which had a direct impact on their business over the years. The changing nature of technology has also impacted booth he nature of operation and the management. In US most of the retailers have expanded in the global market and this has led to the emergence of chain among the retailers. In the process of strengthening their position, some of the organizations had undertaken mergers and acquisitions and have gained profitability in their business operation. However the change in the retail sector has threatened the existence of traditional supermarkets and their causes have been affected in the overall improvement of the sector (Plunkett, 2008). Changes in Wal-Mart over the decade: Wal-mart has encountered substantial growth in the business over the last decade. The sales of the organization almost doubled since 1995. Within 2005 Wal mart had near about 7000 stores around the world with almost the half number throughout the United States. However in 2006, Walmart shut down all the stores in Germany. In the latter half of 2010, the company was also involved in an acquisition process with a video streaming company, Vudu. In order to gain efficiency in the market the organization introduced a new slogan in their advertising campaign. The operations of Walmart also changed considerably over the last decade and had adapted to the changing demands of its global customers. In 2006 Walmart increased the amount of organic foods in the stores due to the rise in popularity of the organic food supermarkets. In the same year Walmart opened up a supercenter in Texas with superb decoration in the interiors and providing facilities which addresses the needs of the affluent demographic in the country. However amidst the changes, WalMart has been able to maintain its top position among the retailers across the world (Plunket, 2008). Changes in Costco: The last decade has witnessed Costco, to emerge as the largest warehouse chain to operate in the United States. In 2009, the organization was also reported to be the largest retailer of the country. The success story of the organization can also be traced down to the fact that the organization reported to account a sale of $ 3billions within a time frame of six years. The organization has focused in the strategy of maintaining lower price of the products so that the customers can access the products easily. Cosco even stopped selling Coca Cola under its chain as Coca Cola refused to lower the price. The strategy of maintaining lower prices of products proved efficient for the organization in matters of strengthening the market share. In 2010, the organization also accounted 9.1% increase in revenue in comparison to the previous year. Toys R Us: Toys R Us has been carrying out the business across US and other leading countries for more than 60 years. The organization has established itself as a leading brand in extensive assortment of toys across the world. Keeping in mind of the growth in online selling, in 2009, the organization acquired e Toys. Com to list the unadvertised products and to provide exclusive deals to the customers across the e- commerce sites. The result of the change in structure worked favorably for the organization and the overall online sale of the organization grew by 29.9% in the year after the acquisition was effected. In view of the success, the organization also planned to open up a dedicated ecommerce center in New York. In matters of the production policy, the organization incorporated safety requirements in 2008, which were in excess of the standards stipulated by the federal government and also looks after the safety of the infants in designing their products. (Toys ‘R’ Us opens a dedicated e-commerce fulfillment hub, 2011) Cases of merger in the retail industry: In 2005, the merger of Kmart holding corporation and Sears, Roebuck and co was initiated. However both the organizations carried out their sales of the product under their respective brands. However the organizations were headed by a single board of director and the administrative operation of the merged organization was carried under the name of Sears’s holdings. The merger between the organizations was expected to derive revenue of $ 200 million. The post-merger effect was very much effective as improvement in every financial parameter was noticed. Ratios of Sears Holding after merger: Profitability Ratios: Return on Assets (ROA) = (Net Income / Average Total Assets) (Siddiqui, 2006, p.647-657) Net income of Sears in 2006= $ 1490/30, 5073 =0.048 =4.87% Return on Equity (ROE) = (Net Income / Average Shareholder’s Equity) =1490/11611 =12.8% Profit Margin = (Net Income / Sales) 1490/5312 (in $ millions) =0.28 =28.4% (Sears Holding Corporation, 2006) Ratios of Sears, Roebuck and co before merger: Net income (Loss) = 1106(in $ millions) Profit Margin = (Net Income / Sales) 1106/19843(in $ millions) =5.5% Return on Equity (ROE) = (Net Income / Average Shareholder’s Equity) 1106/ 4458.8(in $ millions) 24.4% Return on Assets (ROA) = (Net Income / Average Total Assets) 1106/ 4139(in $ millions) =0.0267 26.7% (Sears Holding Corporation, 2004) Ratios Sear Holdings (2006) Sears, Roebuck (2004) Return on Asset (ROA) 4.87% 2.6% Return on Equity (ROE) 12.8% 24.4% Net Profit Margin 28.4% 5.5% Acquisition of May by Federated: The acquisition of Federated and May was initiated in the year 2005 at a price of $ 11 billion. The acquisition was aimed at expansion of Federated and to overcome the loss which the organization was facing considerably. The acquisition brought the 1000 stores of Federated and May under the same unit and annual sales of $ 30 billion was predicted. The agreement of the acquisition held that Federated will be paying $35 of cash for each of the May share. The overall acquisition proved effective and Federated returned to its profitable venture. The ratio analysis of Federated pre and post-merger is illustrated below. Ratio of Federated in 2004 Net Sales =15766 Net Income (loss) = $ 689 Profit Margin = (Net Income / Sales) =689/15776(in $ millions) =4.3% Return on Assets (ROA) = (Net Income / Average Total Assets) =689/14550(in $ millions) 4.73% Return on Equity (ROE) = (Net Income / Average Shareholder’s Equity) =689/5940(in $ millions) =11.5% (Federated department stores, 2005) Ratio of Federated in 2006 Profit Margin = (Net Income / Sales) Net sales =26970 995/ 26970(in $ millions) =3.68% Return on Assets (ROA) = (Net Income / Average Total Assets) 995/33168(in $ millions) = 0.29 Return on Equity (ROE) = (Net Income / Average Shareholder’s Equity) 995/13519 = 7.36% (Federated department stores, 2006) Federated 2006 2004 Return on Asset (ROA) 2.99% 4.73% Return on Equity (ROE) 7.36% 11.5% Net Profit Margin 3.68% 4.3% As shown above the acquisition returned profit to the company and Federated was back in stable financial conditions. Conclusion: The retail industry has undergone vast changes both in its operation and the overall structure. The industry has become much more dependent on technology and the big players of the market have undertaken various strategies for remaining competitive in the market. However amidst all the changes, WalMart still has able to hold its position as the top organization in the sector. In the retail industry organizations like Federate have acquired May and thus have tried to improve its condition. The strategies of merger and acquisition have been utilized efficiently by the organizations. On the other hand some organizations have also looked to exploit the concept of e-business and have strengthened the web portals and provided opportunity for the customers to shop online. In the last decade, the taste and the preference of the customers along with their income level have changed and the organizations operating in the retail industry have efficiently spotted the difference and have delivered their best for the satisfaction of the overall customer profile. The overall outlooks of the retail industry have changed drastically over the years as the shopping malls have covered and the businesses of the departmental stores have suffered significantly. References Federated department stores, (2004), macysinc, retrieved on 6/1/2012, from http://www.macysinc.com/aboutus/annualreport/annual_report/2004/2004_ar.pdf Federated department stores, (2006), macysinc, retrieved on 6/1/2012, from http://www.macysinc.com/Investors/vote/2006_10k.pdf Plunket, J, W, (2008), Plunkett's Retail Industry Almanac 2008, New York: Plunkett ResearchLtd Sears Holding Corporation, (2006), annualreports.com, retrieved on 6/1/2012, from http://www.annualreports.com/HostedData/AnnualReports/PDFArchive/shld2007.pdf Siddiqui, S, A, 2006), Managerial Economics and Financial Analysis, Liguria: New Age International Toys ‘R’ Us opens a dedicated e-commerce fulfillment hub, (2011), internet trailer, retrieved on 6/1/2012, from: http://www.internetretailer.com/2011/04/20/toys-r-us-opens-dedicated-e-commerce-fulfillment-hub Apendix: Balace sheet showing figures of 2004 and 2006 Balance sheet of federated in 2006 Balance sheet of federated 2004 Read More