Big-Box & Department Store Retailers

The Big-Box & Department Store Retailer segment of the Retail Industry has fought tough conditions over the past five years, with revenue declining to an annualized rate over the past five years of 1.2% to $198.0 billion in 2013. Weak consumer confidence and low disposable income deterred households from making discretionary purchases during the recession, causing demand and sales to fall substantially for traditional department stores. In recent years, online retailers have emerged as a threat to industry players, stealing customers by offering convenience and low prices. However, these poor conditions did not translate into lower profit. Industry profit in the Big-Box & Department Store Retailer segment rose to 4.8% of revenue in 2013, from a low of 2.9% in 2008. This is increase in profitability is due to a higher sales mix of high margin items and expense management. Recent improvements in economic conditions relieved some of the segment’s overall struggles as revenue grew by 2.2% in 2013.

Over the past five years, the conversion of discount big-box and department stores into warehouse clubs and supercenters has caused much of the segment’s decline. Discount giants, such as Walmart and Target, have begun retrofitting stores with fresh grocery sections to expand their markets and attract more customers. This expansion, however, takes them into the Warehouse Club & Supercenter Retailer segment and, therefore, effectively reduces their market share in the Big-Box & Department Store Retailer segment. In addition to this change, many operators have been forced out of the Retail Industry or have consolidated and merged with larger players as a result of the recession. According to the U.S. Census Bureau, the number of companies in the segment dropped from 71 in 2008 to 68 in 2009, fluctuating slightly over the last few years, and ended up back at 68 in 2013.

Continued economic recovery is forecast to aid the segment’s growth over the next five years. Armed with deeper pockets, consumers will likely increase spending on high-end discretionary items, such as those sold by traditional department stores. Additionally, discount department stores are expected to thrive as customers continue to shop well within their budgets out of caution. The Big-Box & Department Store Retailer segment’s revenue is expected to increase slowly over the next five-year period at an annualized rate of 1.0% to total $207.9 billion by 2018 because of heavy online sales. The transition of Walmart into the Supermarkets & Grocery Stores segment is causing some of the dampening the growth of the Big-Box & Department Store Retailer segment causing it to slightly lag expected U.S. Gross Domestic Product (GDP) annual growth of 2%.