Summary
1. Major downturns for the retail industry. 2. The inconsistent consumer is the heart of these turning points.
Analysis
The article rightly points out that Retailing is going to be tough in 2008. In fact, I think retail will suffer their worst decline in 2008.
All one has to do is to look over the last 5-7 years and notice the major changes in consumer behavior. It used to be all brick and mortar and slowly and steadily online shopping started to grow. The internet traffic has grown steadily ever since the advent of the World Wide Web. Companies like Amazon and Yahoo have prospered primarily because of the astronomical growth of online shopping.
In addition, the internet has made the world smaller. Someone once said that with the advent of the internet, “Geography is History”. Very rightly said as it does not really matter whether the services provider is right next door in your backyard or in another country. China is a big beneficiary for almost all products. You name it; someone in China not only makes it but makes it and ships it to you cheaper. Now, cheaper may not always be better although Chinese companies have shown that their quality is really top-notch. More recently there has been some scare of tainted products from China but I think that is more the exception than the rule.
Retailers are also directly affected by oil and energy prices. Oil prices are hovering at a record $100 per barrel. This has primarily been because of the sharply high demand from countries like India and China. Even with the lower manufacturing prices in China, oil prices will soon have a global impact on the world including the USA.
Bottom line, retailers are in for a very tough time in 2008 and maybe longer. All the points mentioned above will contribute to a tougher business for retailers. There will be consolidation in the retail business which I think will be good for the ones that survive.
