Retail-Discount Stores Outlook: Consumer Spending Key To Growth

The Zacks Retail – Discount Stores industry comprises companies that offer apparel, accessories, footwear, beauty products, personal and baby care products, cleaning products, pet supplies, and food and beverage products.

The companies also provide home textiles, home furnishings, housewares, toys and seasonal décor products. They sell their products through stores as well as digital channels. Some of the companies operate membership shopping warehouse clubs offering branded and private-label products in a range of merchandise categories.

Let’s take a look at the industry’s three major themes:

  • The industry’s prospects are closely tied to the purchasing power of consumers. A robust job market and higher disposable income are working in favor of industry participants. Also, the strategy to sell products at discounted prices has helped industry players expand their customer base, which comprises lower to middle income group. Moreover, a differentiated product range in sync with customers’ spending habits enables the companies to enrich the shopping experience, resulting in market share gains and higher sales per square foot.
  • Players in the industry are steadily developing omni-channel capabilities, which include technological updates and store remodels. They are undertaking brand enhancement efforts with off-price models and innovative customer-friendly approach such as same-day delivery options. These along with a compelling store growth story at convenient locations and focus on demand-driven products lend support. Better pricing, effective inventory management, and merchandise and operational initiatives should boost revenues of the industry constituents.
  • The companies in the industry are vying for a bigger share on attributes such as price, products and speed to market. Of late, the retail-discount space has turned highly competitive with the growing dominance of Amazon (AMZN). This has compelled a number of players to strengthen their digital ecosystem and boost shipping and delivery capabilities. While these endeavors drive sales, they entail high costs. Apart from these, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might also compress margins. Nonetheless, companies are resorting to cost containment.
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