Trends and Challenges in the Retail Industry
The Industry Continues to Adapt to Online Competition
[Title Card] Trends and Challenges in the Retail
[Host] The Middle Market Indicator Survey showed a
decrease in revenue and employment growth for the retail industry, with low
projections for the next 12 months. This outlook has offered the opportunity for
creativity, as the industry continues to adapt to online competition with
brick-and-mortar stores. Ryan Fischer, Senior Vice President, Restaurant and
Retail Industry Manager with SunTrust Bank, offers more insight into the trends
and challenges facing the retail industry.
[Ryan] While we've seen a decline in month-to-month
revenue growth, I do think it's important to note that we've also seen a strong
year-over-year revenue growth in the first half of 2017, and expectations for
the year continue to be in that 3-4% range. And that's a nice rebound from what
we saw in 2015 and 2016.
I think what's really changing is where people are spending their money. In
2017, the biggest winners have really been online retail, off-price or discount
retailers, building materials and furnitures and home furnishings. Apparel and
home good shoppers, on the other hand, are really finding great deals and
increasing name brands at off-price retail and through ecommerce while shifting
those sales away from the department stores and traditional brick-and-mortar
I think consumer spending remains fairly resilient, and there's hope that
continued wage growth in the back half of the year will lead to higher spending
in the back half of 2017 and into the holiday season.
[Host] The good news for brick-and-mortar
retailers is that ecommerce is still less than 10 percent of overall retail
revenue. Still, in order to compete with ecommerce, one of the
biggest trends in the retail industry is for brick-and-mortar stores to
emphasize customization, offering a unique experience to customers.
[Ryan] Retailers can differentiate themselves by
providing that custom product or service as well as unique shopping experience
that can't be replicated online or at home. And today's consumer really has a
wealth of options at their fingertips, so attracting that consumer to your
stores is vital to your survival.
Creating that unique experience has really been done recently through a lot
of investment and store remodeling and design, investing in the employee
training and improving systems. All really designed at improving the ambiance
and shopping experience for consumers. That leads to unique opportunities for
retailers to differentiate themselves based on their product mix. So they aren't
just competing on price and value, but actually higher margin custom
[Host] Traditional malls are one sector of the
retail industry looking to create unique experiences for customers. Ryan shares
how some traditional retailers have started to adapt.
[Ryan] First, you've got anchor tenants like
Nordstrom that have really been evolving on their own by building out an
off-price sister chain, Nordstrom Rack, to help fuel growth. And they're now
even testing a smaller high-service model that doesn't even stock clothes.
Instead, they'll have a team of personal stylists that will retrieve clothes
from other stores in the area for customers to try on or pull together looks for
customers on their own style board app. In addition, they're going to offer
manicures. They've got a bar that sells coffee and alcohol and also there's pick
up for online orders. So they're providing a high-end service model, but with
supplementary existing store networks.
[Host] Another major way malls are looking to bring in
customers is through restaurants that can put their own spin on creating a
unique atmosphere, often combining traditional dining with various forms of
[Ryan] As traffic continues to decline at the malls, mall
owners are really looking at chef-driven independent restaurants as well as
entertainment venues. These are the Dave & Buster's of the world that have
been a long leader in ‘eatertainment.’ Eatertainment is that combination of
dining and entertainment in one package. So you've got a full-service restaurant
and bar coupled with some sort of entertainment venue.
Eatertainment options are also driving changes to the drinking places side of
the equation, where you're seeing emerging brands, such as Topgolf or Punch Bowl
Social, boutique bowling alleys, and other bar and grill concepts adding spaces
for shuffleboard, bocce, cornhole and other kinds of games to really
differentiate and keep people longer to increase that average check.
A further evolution coming to a mall near you may be a smaller amusement park
venue, containing not just arcade and midway games, but also amusement rides
typically seen at the state fair as well as even proprietary rides that will
really draw traffic from far and wide.
[Host] For many established brands, however,
making the shift to a more customized atmosphere can be a fine needle to
[Ryan] We're seeing tremendous capital
investment in remodeling restaurants by mature brands. But that spending for the
most part has proven ineffective at helping to maintain sales and traffic, but
not increasing it. New independence in emerging micro chains, on the other hand,
are really gaining a larger share of the increased sales in the industry.
Young people especially are looking for unique experience, and that's a
dangerous proposition for large mature concepts. There are larger chains out
there that continue to grow and succeed, such as a Texas Roadhouse, that have
been able to create a high energy, fun atmosphere or even a Chick-Fil-A that has
separated themselves from the QSR pack with healthier menu items and a service
model that frankly is the envy of the industry.
[Host] As online retailers continue to expand
and innovate through technological advances and strategic acquisitions,
retailers and restaurants are increasingly tasked with adapting in order to
Amazon buying Whole Foods is really a game-changer. Being able to deliver
high-end ingredients as well as prepared meals to your home is really a scary
thought for the restaurant industry and other food retailers alike. Restaurants
will try to counter that by increasing delivery and takeout from their stores,
but that has its own inherent problems.
A lot of food product doesn't travel well, or worse, the food can get cold
because of a third-party delivery service that you use that took too much time.
And all of that can really damage the brand.
Another major risk of delivering takeout is taking the sales out of your
dining room. You risk losing talented servers and management to someplace that
can turn more tables and the staff can earn more money, and no one really likes
to eat in an empty restaurant. You know, the energy and the vibe of a busy
restaurant has a significant impact on a customer's overall enjoyment of the
For new stores, this can help them in reducing the square footage of dining
rooms needed and potentially lower the development cost going forward, but it's
difficult for an existing store to really benefit from that. The other really
major difficulty there is finding drivers and the resulting rising cost of
delivery charges as more and more restaurant operators enter the fray of
Reaching customers through social media and driving sales through online or
mobile apps will be increasingly critical to restaurants' operating success.
[Host] Thanks, Ryan. To learn what business
leaders from all industries across the U.S. recently told the National Center
for the Middle Market about revenue and employment trends, visit the SunTrust
Middle Market Banking Page.
NCMM Middle Market Quarterly Survey
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