The Big-Box & Department Store Retailer segment is expected to experience better results over the next five years. On the strength of the economic recovery, revenue is forecast to increase at an annualized rate of 1.0% over the next five years to total $207.9 billion in 2018. With rising sales, profit margins are likely to increase to about 6.2% of revenue in 2018, providing much-needed relief to big-box and department store operators. However, looming competition from online retailers is expected to place price pressures on operators, while even more players transition to the Warehouse Club & Supercenter Retailer segment.
Big-Box & Department Store Retailers depend entirely on consumer spending conditions because households account for virtually all of the segment’s demand. Consequently, traditional stores within the segment suffered greatly after 2008 when the recession caused disposable income and consumers’ confidence in the economy to take a turn for the worse. However, better demand conditions await surviving operators as the U.S. economy slowly recovers and gains traction. In the five years to 2018, consumer confidence in the economy and per capita disposable income are forecast to increase at annualized rates of 5.2% and 2.4%, respectively. These improvements will likely drive up traditional big- box and department stores’ sales as consumers, armed with more money, increase their purchases of industry products that they had delayed during the recession. As a result, traditional big-box and department stores will experience moderate revenue growth.
Over the past five years, discount big-box and department stores including Walmart and Target grew due to the increasing number of middle-class customers who began shopping at those stores to save money. As the economy gains traction, consumers will have more disposable income, which will lead some customers away from discount options and back to full retail prices. However, despite this shift toward higher-quality goods, discount stores will likely retain a large portion of their recently captured market share as consumers greet newfound cash with caution and continue to pinch pennies. As a result, discount big-box and department stores will continue to experience moderate revenue growth. On the whole, the Big-Box & Department Store Retailer segment’s performance is forecast to improve, starting with moderate revenue growth of 0.9% in 2014 to $199.8 billion.