More Goods, Fewer Workers
In 2006, most retailers will see both top- and bottom-line growth, but job-seekers should look to other sectors of the economy.
The fundamental positive economic forces underlying the retail outlook are projected gains in statewide employment and disposable personal income, above-average population growth, an improved stock market, recent home price appreciation, the lagged effects of the new housing boom, and more out-of-state visitors.
Negative forces include higher interest rates, lower housing turnover, slower appreciation of residential real estate, more competition among retailers, slowly accelerating labor costs and the recent drop in consumer confidence following Hurricane Katrina. Persistently high and volatile energy prices also will rein in discretionary spending by low- and middle-income households, but probably will not have a significant impact on the spending of upper middle and upper income households.
In 2006 and well beyond, Georgia's aging baby boomers will influence the pattern of retail sales. Seniors tend to spend less on goods and more on services, particularly health care and leisure activities.
For several years, housing market trends have been very supportive of retail sales. In 2006, the lagged effects of the strongest housing market in the state's entire economic history will continue to support stores that sell consumer durables and home-related products. However, if mortgage rates rise as expected, such stores will begin to feel the impact of a slowdown in the state's housing market. Exceptions are stores in Coastal Georgia where the housing boom is expected to continue.
Since the overall economy will not be soaring in 2006, stores that emphasize discretionary goods or luxury items are likely to see average rather than above average gains. Similarly, automobile dealers coming off the "employee pricing" boom of mid-2005 can expect lower new car sales.
But consumers' demand for used cars, parts, ancillary equipment and service should rise enough to offset the slowdown in new vehicle sales. Because margins are typically much higher on these activities than on new car sales, automobile dealers should do reasonably well in 2006.
With 3,100 stores, Wal-Mart is the world's largest retailer and Georgia's largest employer. Despite recent negative press and limited online presence, we expect Wal-Mart to thrive, posting sales growth well above the industry average. The company's already dominant share of total retail sales will expand. Wal-Mart is beginning to target upscale shoppers and will increase its emphasis on supercenters and on opening smaller stores located in the inner suburbs of urban areas.
The fact that Wal-Mart is now the nation's largest grocer validates the supercenter format. Consumers will bypass several neighborhood grocery stores to do the bulk of their weekly shopping under one roof. Despite the daunting size, shoppers find it's easier to park and shop at a supercenter than it is to make two or more stops at smaller neighborhood retailers. The company's extraordinary success across a broad spectrum of retail categories stems from its state-of-the-art supply chain management. Resulting efficiencies are passed on to consumers in the form of low prices.
Although retail sales will continue to exhibit healthy growth, rapid restructuring in the retail sector is causing sectoral employment to drop sharply. This rationalization of retail jobs will continue in 2006. Over the last five years, Georgia's retailers have eliminated some 30,000 positions - about 6 percent of total sector employment. Most cutbacks are due to new retail formats and technologies, both of which result in less labor-intensive operations. The job losses are most evident for food stores - precisely where restructuring activities have been the most intense. The success of supercenters helps to explain the loss of between 15,000 and 20,000 Georgia grocery jobs.
The growing acceptance of cyber-shopping is one of the most pervasive forces determining retailing's future. Even today, retailers are virtually required to have both a physical and an electronic presence, which can generate substantial sales in physical stores. Thus, retailers with both a physical and an electronic presence have an advantage over purely online retailers.
Over the next decade, online sales will grow much faster than in-store sales. Today's young adults -who literally grew up online - are the leading edge of a stream of cyber savvy generations. As their buying power begins to dominate the marketplace, expect e-commerce to boom.