An Opportunity For Expansion In Retail

886 words - 4 pages

PRELIMINARY RESEARCH INDUSTRY OUTLINE INTRODUCTION US retail sales in 1997 were 2.566 trillion. Retailing is evolving into a global, high tech business. Obviously a retailer is in business to sell merchandise and department stores are retailers that carry a broad variety and deep assortment, offer considerable customer service, and are organized into separate departments for displaying merchandise. Department stores are one of the major type of general merchandise retailers.INDUSTRY ANALYSIS Major Competitors The largest department store chains in the United States are Sears($33.5 billion annual sales), JC Penney($19.3 billion), Federated Department Stores($15.8 billion), and the May Company($13.1 billion). Over the past 20 years many new retail format have been developed but while the number of different retail formats have grown, the number of competitors within each format is decreasing. Among the 25 largest US retailers, Sears was ranked #2(ranked #15 in all US firms) with $1048 million profits in 1998. JC Penney was ranked 5th with $594 million profits, FDS ranked 12th with $662 million profits, and May Department Stores was ranked 17th with $849 million profits.Everybody knows a downturn is the absolute wrong time to cut back on advertising but the change in advertising spending in retail industry is negative 1.7% just because the economy is in recession. Deep discounting of winter merchandise lured consumers into the nation's stores during January, offering struggling retailers a brief respite from a sluggish sales trend. Meanwhile, department stores continue to struggle, though overall the sales declines weren't as deep as Wall Street expected. Notable exception was May Department stores which posted deeper sales declines than expected. A pleasant surprise came from JC Penney, which posted a better than expected 5.9% gain in same store sales. Saks Inc. recorded a 1.7 percent gain, May recorded a 10.7% drop in same store sales and Sears sales were down 3.4%.The Five Forces Model (Porter's Framework) Although there is usually a risk of new entry by potential competitors in almost every industry, the risk is very low in department stores retailing for new companies. The only threat to the department stores could come from other existing general merchandise retailers who already have a brand awareness among their customers. An example would be Gap(One of the largest specialty store chains) to decide to open up new department stores nationwide. The market is very saturated and the industry is at the late maturity stage at the product life cycle. There are no government regulations that would constitute a major entry barrier in the industry but the new entrants would be facing high risk by entering to a saturated market if they do not have a competitive advantage over the others. Brand loyalty is very...

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