Stores 2008 Global Powers of Retailing - (Page 44) 2008 global powers of retailing 10 trends in global retailing 1. Social responsibility Relatively affluent consumers in affluent countries are increasingly concerned about the impact that companies have on society. This includes the impact on the physical environment, on workers in countries that supply products, and the impact that products have on the consumers who purchase them. This focus on social responsibility and product safety is likely to grow, especially as more consumers become aware of these issues through mass media. As a result, some consumers appear to be willing to pay a price premium for products or services where there is a discernible focus on social responsibility. In such cases, retailers can actually increase their profit margins by engaging in such a focus — while at the same time performing a service. Moreover, many governments, instead of simply threatening to tax companies for environmental infringements, are providing tax incentives for companies to go green. In addition, some retailers and their suppliers are eager to get ahead of the competition on this issue in order to be well positioned should the regulatory environment become more onerous. For example, if governments ultimately impose a tax on carbon emissions, those companies that have already invested in reducing such emissions should have a competitive advantage. As globalization and reduced trade barriers lead to greater international trade in perishables, food retailers are becoming increasingly concerned about the safety of their supply chains. The ability to properly monitor supply chains and react quickly to problems will also be a competitive advantage for retailers. Having a reputation for doing this will likely enhance the brand equity of retailers. will give way to domestic demand as the primary source of economic growth. Lower-priced imports, combined with rising incomes, will fuel consumer spending. The same will be true to a lesser extent in Japan. The bottom line is that the geographic mix of consumer spending growth will shift away from the US and toward Asia. For the world’s largest retailers, this means increased growth opportunities in Asia. It also means that the US market will be a bit more challenging. There, the personal savings rate is near zero and is likely to rise, thereby slowing the growth of spending. In addition, the retail market is already highly saturated. Retailers in the US market will thus increasingly face a market share battle, which should compel more of them to seek opportunities abroad, particularly in Asia. They will, however, face competition from Europeans retailers who have been aggressively investing in Asia for quite some time. 3. Commoditization run amok We live in an age of great technological innovation. This has enabled ordinary people to enjoy standards of living unimaginable even to royalty a century ago. Improvements in manufacturing efficiency enable the highest quality products to be sold at amazingly low prices. The end result? Consumers are jaded; they have come to expect this. To demonstrate differentiation from competitors, it is no longer sufficient for retailers to simply do everything right. There must be something else. Consequently, we have arrived at the age of commoditization. Commoditization takes place when consumers view products as essentially undifferentiated other than on the basis of price. Traditionally, basic products were considered commodities — petrol, cooking oil, basic apparel. Yet today, consumers see electronics, fashion, and processed foods as commodities. The result is that retailers and their suppliers increasingly compete on price to the exclusion of all else. This drives down prices and margins and creates an onerous business environment. Avoiding commoditization, therefore, is becoming one of the signal challenges of our time for global retailers. Those that differentiate on the basis of something other than price will be the winners of the future. This will mean differentiated retail formats, customer experience, and product mix. It may also mean focusing less on the mass market and more on niche oriented markets. 2. Global consumer growth shifts away from the US During the past decade, the extraordinary growth of consumer spending in the US was a driving force for the global economy and for the global retailing industry in particular. This growth was driven, in part, by the strength of the US housing market. The downside of this growth was that it entailed Americans living beyond their means and taking on external debt to finance their largesse. Now the party has come to an end. The collapse of the housing bubble and the rapid decline in the value of the dollar imply that, in the near future, more US economic growth will come from exports rather than consumer spending. And, although the latter will grow, it will probably grow more slowly than the overall economy. Quite the opposite will be true in the rest of the world — particularly in Asia. In China, for example, economic growth has been fueled by exports. Yet as the value of the Chinese currency appreciates over the next few years, export growth 4. The rise of “long tail” retailing Some of the most successful stories in retailing in recent years have come not so much from industry giants that target the mass market but from smaller chains with a narrower focus. There is a good reason for this. The mass market has become saturated while the population of developed countries has become more fragmented in terms of incomes and shopping behavior. Within the mass market, retailers and their suppliers have become highly focused on price competition, thereby driving down margins and failing to provide consumers with clearly differentiated offerings. The solution to this is for G44 STORES / January 2008 www.deloitte.com/consumerbusiness http://www.deloitte.com/consumerbusiness
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