The wholesale and retail trade industry is made up of two parts: the wholesale trade sector, and the retail trade sector.
The wholesale trade sector comprises establishments engaged in wholesaling merchandise, generally without transformation, and rendering services incidental to the sale of merchandise. The wholesaling process is an intermediate step in the distribution of merchandise. Wholesalers are organized to sell or arrange the purchase or sale of (a) goods for resale (i.e., goods sold to other wholesalers or retailers), (b) capital or durable nonconsumer goods, and (c) raw and intermediate materials and supplies used in production. Wholesalers sell merchandise to other businesses and normally operate from a warehouse or office.
The retail trade sector comprises establishments engaged in retailing merchandise, generally without transformation, and rendering services incidental to the sale of merchandise. The retailing process is the final step in the distribution of merchandise; retailers are, therefore, organized to sell merchandise in small quantities to the general public. This sector comprises two main types of retailers: store and nonstore retailers.
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ASSOCIATIONS & INSTITUTIONS:
Quarterly Census of Employment and Wages data show that wholesale and retail trade make up a large part of the nation's employment and business establishments. In the economy as a whole, wholesale trade represents about 4.4 percent of all employment and about 7.2 percent of all establishments; while retail trade is about 11.7 percent of all employment and about 12.9 percent of all establishments.
The annual average of the average weekly hours of nonsupervisory workers in wholesale trade was 37.8 in 2003; in retail trade, the corresponding average weekly hours number was 30.9 in the same year. For all private industry, the average was 33.7.
In wholesale trade, the average hourly earnings of nonsupervisory workers were $17.36 in 2003; in retail trade, nonsupervisory workers' average hourly earnings were $11.90. The average earnings for production and nonsupervisory workers in all private industry were $15.35 in 2003.
According to the Current Population Survey, in 2003, the unemployment rate of persons most recently employed in wholesale and retail trade was 6.0 percent, the same as the overall unemployment rate.
Data from the Mass Layoff Statistics program show that in 2002:
in wholesale trade, there were 150 extended mass layoff events, resulting in 24,205 separations of workers from their jobs, and 19,476 initial claimants for unemployment insurance;
in retail trade, there were 412 extended mass layoff events, 135,679 separations, and 108,419 initial claimants.
Employment Projections data indicate that wholesale trade employment will increase 11.3 percent over the 2002 - 12 period. Retail trade employment will increase 13.8 percent. Total employment for all industry sectors is projected to grow 14.8 percent.
Labor productivity - defined as output per hour - grew by 5.6 percent in wholesale trade from 2001 to 2002, according to data from the Productivity and Costs program; the growth in output per hour in retail trade was 4.5 percent. There are separate measures of productivity for many industries at the 4-digit NAICS level of classification.
The Producer Price Index program publishes data for many industries in the retail trade sector.
In 2003, there were 191 fatal occupational injuries in wholesale trade, and 343 fatal occupational injuries in retail trade; there were 247,600 nonfatal injuries and illnesses in wholesale trade, while in retail trade there were 620,900 nonfatal injuries and illnesses, according to data from the Injuries, Illnesses, and Fatalities program. In wholesale trade, the nonfatal injuries and illnesses incidence rate was 4.7 per 100 full-time workers; in retail trade, the incidence rate was 5.3 per 100 full-time workers. The rate was 5.0 per 100 full-time workers in all private industry.
Businesses engaged in the wholesale trade have an intermediate place in the distribution chain, between producers and consumers of goods. They purchase and resell goods, such as the output of agriculture, mining, or manufacturing, generally without making any substantial changes to the goods. Some of the purchasers of the goods are retailers or other wholesalers. (The term jobbers is sometimes used for wholesalers who specifically serve retailers.) Other purchasers use goods such as industrial machinery or medical instruments to produce goods or provide services. Still other purchasers are processors who transform raw or semi-processed materials into goods of greater commercial value.
Wholesalers operate out of offices or warehouses. The warehouses are temporary storage facilities; unlike a retail store, they are not designed to display merchandise and do not encourage walk-in traffic. Wholesalers do not advertise to the general public. They contact their customers by telephone, sales workers, industry-specific advertising, or electronic media. They tend to create long-term relationships with purchasers, becoming regular suppliers with strong ties.
Wholesalers earn their revenue by charging buyers slightly more than they have paid sellers. Buyers are willing to pay this markup because wholesalers serve as a single point of contact where goods are available from multiple producers. For example, a food market needing eggs, milk, fruit, vegetables, and meat can buy from one wholesaler rather than identifying, negotiating prices, paying, and arranging shipping with the countless different farms that produce these agricultural goods. Wholesalers also relieve purchasers of the burden of warehousing goods that are not needed immediately.
In 2014, wholesalers made nearly $7.7 trillion in sales. These sales are divided into durable goods (approximately $3.4 trillion in sales) and nondurable goods (more than $4.3 trillion). These two sectors make up the largest shares of the industry, accounting for more than 2.9 million employees in durable goods and more than 2 million employees in nondurable goods. There is also a third sector, wholesale electronic markets and agents and brokers, that consists of businesses primarily engaged in bringing buyers and sellers together to make deals. This sector accounts for more than 895,000 employees. It functions with a smaller workforce than that of durable and nondurable goods wholesalers because it is engaged only in deal-making and therefore does not need workers for warehousing, trucking, and other functions of the two sectors that take possession of goods. Many of these establishments do not even rely primarily on human workers for deal-making, using electronic resources instead.
The Census Bureau issues monthly reports with two key figures on the status of the wholesale industry: sales and inventory. The ratio of inventory to sales (I/S), especially for durable goods, is often examined as a measure of the health of the economy because during recessions, those who buy from wholesalers curtail their purchases and wholesalers' inventories pile up. Retailers generally place orders in advance of the shipping date, so it takes months or years for their purchase cutbacks to become evident as wholesalers' excess inventory. As a result, the I/S ratio usually reaches its peak well after the recession has started, and it is considered a lagging indicator of economic health. For example, the I/S ratio for durable goods was 0.110 for 2007, the year the Great Recession began, and the ratio did not peak (at 0.123) until 2009.
Consumer spending typically accounts for some two-thirds of Gross Domestic Product. Therefore, GDP trends usually indicate the health of the retail sector. In addition, measures of Consumer Confidence help gauge consumer spending and savings rates, which also relate to the performance of retailers. In tough times, consumers, having less disposable income, limit their outlays to necessary day-to-day items. Conversely, during strong economic periods, consumers are more willing to make big-ticket purchases. Observers should also keep watch on the Consumer Price Index. Most retailers resist absorbing higher wholesale prices, and attempt to pass on any increases to their customers. At a certain point, however, consumers will push back against price hikes, and retailers' sales and margins will then come under pressure.
There are many types of retailers. Consumers can afford to be choosy about where they shop, and retailers often distinguish their offerings through promotional activity. What sets one retailer apart from another is the quality, quantity, price, and selection of products available. Full-line department stores offer moderately priced products across several merchandise categories-for example, home appliances, electronics, cookware, linens, and apparel. Specialty department stores depend more on apparel, accessories, and cosmetics. Upscale specialty department stores, marketing top American and European fashion designer merchandise, charge a premium for their wares.
Aside from department stores, industry observers will find discounters. Discounters sell a broad selection of everyday items, such as stationary, sporting goods, toys, hardware, and over-the-counter pharmaceuticals. As growth opportunities diminished, a number of discounters began offering groceries to gain business. Another type of company is the wholesale club. Wholesale clubs have a lineup similar to that of discounters, but what sets them apart is they sell products from warehouse-like centers in bulk packages, under no-frills, self service terms, and charge a membership fee. Membership fees make up a large portion of operating profit.
Gone are the days when IT strategy was limited to architecture, modernization, and enterprise resource planning (ERP) systems. Investment options, technologies, and vendors number in the thousands, making it challenging to navigate and hone in on the next big thing.
Ultimately, retailers should figure out how to scale these solutions and embed them into their way of doing business. To leverage the true power of next-generation technologies, retailers should make some significant changes. They should be able to consistently mine the data they collect, transform their operations to deliver on the brand promise, and adapt to the future of work.
One of the most straightforward ways retailers can expand sales is by opening new stores. It should be kept in mind, though, that new locations initially entail increased operating costs, some of which are fixed. Management must be careful not to open new stores in close proximity to existing ones. Doing so often results in sales cannibalization. Historical and planned store counts lend a view to a company's expansion strategy. For instance, during a recession, well-heeled retailers may try to gain share by developing stores within competitors' territories. Cash-strapped companies, on the other hand, may retrench, closing low-profit locations. The ability to build or lease new stores depends on a company's cash balance, debt, and available credit. Leasing property requires less capital and permits quicker expansion than does construction, but long-term agreements can make it difficult to close underperforming stores when cash needs to be conserved.
New stores allow retailers to boost year-to-year sales matchups. A better measure of sales growth is comparable store sales, or comps, which only include locations in existence for at least one year. If comps rise, profits post greater gains, since they do so with little additional fixed costs. Should comps fall, the retailer may have to streamline its operations to maintain profit margins. One way a retailer can improve comparable store sales is to accurately anticipate what merchandise its target demographic will find the most desirable. This can prove especially difficult for companies that sell apparel, since consumers tend to be rather fickle with regard to their individual fashion tastes. An effective advertising campaign, appealing store layout, and attractive signage are also ways that companies can increase traffic and sales. Furthermore, retailers have had to develop attractive websites to compete against a growing number of online competitors.
To stay competitive, many retailers have shifted their investment strategies over the past 10-20 years. They’ve moved from growth via new stores to growth via big investments in all areas of the business—for example, launching new digital sales models, acquiring other businesses, or transforming their fulfillment processes. The cost to increase market share continues to grow, and many retailers find themselves in a precarious position as they try to figure out how to win battles on multiple fronts.
Where should retailers focus their strategies in 2019 to help move to the right side of the tipping point? Those who can synchronize their bets to create harmony across the organization may be best prepared for what is to come.
Loyalty: Emotional vs. transactional
Retailers should look beyond tiered programs built around traditional loyalty and benefits—points, dollars off, gifts, mailers—that at best elicit “transactional” loyalty. In an industry shifting toward experience-based models, retailers should look to make emotional connections, not just transactional ones.
With a genuine approach to driving consumer loyalty, retailers can optimize loyalty programs and make them even more valuable. Aligning the program with the values and the consumer conversation is imperative. Recently, loyalty programs have been expanding to focus on convenience (with home delivery or issue resolution) and experience (with exclusive events and limited-edition products).
Leadership lessons from China
To build a competitive advantage, retailers should consider looking at global cross-industry trends and build capabilities that can shape consumer experiences. For example, in China, consumers and the retail market have skipped a generation of technology: Next-gen technologies in the United States are yesterday’s technologies in China.
Retailers should be looking at the leaders in China to better understand the art of the possible in emergent areas such as online-to-offline, last-mile delivery, supply chain as a service, social commerce, and the implications of advanced public and private infrastructure.
Privacy by design
For retailers, consumer data is a must-have. For years, the industry struggled with how to create and use data. Now companies are on the hook for what data they have and what it says about individuals.
With regulation after regulation hitting the market, it’s time retailers had their privacy compliance road maps in place. But compliance can also be a catalyst for reinventing personalization and having honest conversations with consumers. Integrity matters in creating loyalty, especially when it comes to dealing with personal identity.
Supply chain as a differentiator
The supply chain is quickly becoming a way for retailers to offer consumers a differentiated service. But making the supply chain faster, more predictable, and cheaper is a difficult triad to manage simultaneously.
As retailers buckle down and prepare for potentially challenging times ahead, supply chain improvements can be a significant growth driver. But rather than just investing in trends like automation smart packaging in reaction to competitors, retailers should think about accumulating long-term competitive advantages through wider supply chain strategies.
The difference between the prices retailers pay manufacturers for their goods and the prices they charge is called the markup. Cost of sales is what is paid to the manufacturers plus outlays for freight, store occupancy, employees, insurance, and utilities. Gross margin is a good measure of how well a company builds sales, sets the markup, and controls costs and expenses. Proper inventory management is vital. Too much inventory increases carrying costs and forces markdowns to improve turnover. (Turnover is the cost of sales divided by the average value of inventory over a given period.) Conversely, an overly lean inventory may translate into lost sales opportunities. Generally, the higher the turnover, the greater the flexibility in setting the markup; this improves the chances of maximizing profit.
Digital startups and funding
Digital startups are no longer playing in the shadow. They’re addressing chronic issues faced by the retail industry through innovative offerings, personalization, authentic engagement, differentiated fulfillment, and more. And the amount of capital flowing to retail tech startups is allowing these companies to realistically compete with established players.
To help offset the early gains made by these startups, traditional retailers will have to push ahead, blurring the lines between business development and corporate strategy. To acquire the next big idea, they might have to seek out guidance from specialists or through a scouting approach.