Economic Impact of Retail in America

What is the economic impact of retail in America

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The retail industry has become a very important contributor of the United States economy. The United Stateshas the reputation of being the world's largest economy. It contributes to almost one-fourth of the global GDP. A huge contributor to the US economy is spending by consumers, which accounts for nearly 71 % of the US economy.

The US is struggling slowly to come out of the severe recession of 2007-8 and even though there is improvement, its growth is not as high as should be and unemployment levels are also high, as much as 7.2 %.

Retail development, redevelopment and sales are a very important indicator of the functioning of the economy and is also related to the jobs available.Retail sales are spurred by customer spending. When consumers feel confident, they will spend more, driving retail sales, improving job prospects in the industry. When there is no consumer demand, it is bound to affect retail industry and hence the economy negatively. Retailing is defined as the process in which producers/suppliers sell products to the consumers in small amounts, from a single point (malls, markets etc) as per requirements. Retailers serve as the link between the producers/manufacturers/wholesalers and the end users. (“Retail Mechanism”, 2013)

There are different ways in which retail transactions can be carried out. These include:

• Counter purchasing: merchandise is not directly accessible. This may include stuff like alcohol and cigarettes.
• Chemists- you need doctor prescriptions to get your medicine.
• Jewellery store- you need staff’s help to purchase jewellery from goldsmiths.
• Banks- you need the help ofbank staff to process your financial transactions.
• Online shopping
• Ordering via telephones (“Retail Mechanism”, 2013)

There are different kinds of outlets which provides these services. These include supermarkets, dispensaries, pharmacies, online shops, discount shops, small shops run by families. An important aspect of retail management and marketing involves determining the Retail pricing. Wholesalers usually sell bulk form of goods to retailers at a lower price. Retailers howsoever keep small quantities of goods to sell to their end users. How is the pricing determined? The ultimate intention for the organisation is to earn profits on commodities sold. Different kind of pricing schemes are as follows:

1. Cost Plus Pricing- where the final price of the product is fixed by the retailer and a fraction of it goes as profit to the retailer, with the remaining being the Cost Price of product. This is an easy way of fixing the prices of commodities. Increase in the price of the goods would be determined by the increase in cost price and thus, the profit would increase too.

2. MSRP – manufacturer suggested retail pricing is another method, where the price is set in accordance with suggestions provided by the manufacturers. The price sold may be lesser than that at which the goods were bought by the retailer, may be the same price as that at which bought from the manufacturer or the price may be high and lowered by subsequent bargaining.

3. Competitive pricing – price is comparable to the rivals’ but retailer offer added benefits to ensure that customers prefer his products as compared to others.

4.Other pricing strategies include Pricing below competition, prestige pricing, psychological and multiple pricing. (“Retail Mechanism”, 2013)

Factors affecting the success of a retail business:

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In retail business, the retailers have to determine strategies for promoting their products and drive drive customers towards it. This is retail merchandising. Promotional merchandising,attractive packaging, presentation, competitions, offers, discounts, creating value, unique pricing, establishing a niche where you want to be known in, are critical to this (“Retail Mechanism”, 2013) Retail management refers to various processes involved in managing all the steps of this chain starting from buying products to selling it to customers. This includes customer service, better buying and selling practices, efficient and secure payment transactions, ledgering of transactions, security, organisation, labelling, distribution, advertisement and promotion. Advertising is crucial for the success of the brand, store atmosphere, cash handling practices, refunds and returns, inventory and stock managementetc should all be implemented properly. Some of other techniques which can help in bringing sales are the use of coupons, which promotes brand names, and popularity. (“Retail Mechanism”, 2013) Other factors which affect customer buying and spending and thus contribute to the success of retail industry include:

1. Location
2. Attractiveness of store
3. Atmosphere and decoration, themes, staff service, courteousness, uniqueness, interest factor
4. Design layout, pricing, promotions,
5. Additional facilities like cafes (“Retail Mechanism”, 2013)

Retail industry and Economic impact:

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The US economy is tied to the jobs sector which again is affected by the status of retail industries. Retail sales are affected by consumer spending as well as changes in the employment sector, amongst other things. Therefore retail industry and changes in retail trade and services are a good indicator the health of the economy. The retail industry thus serves in helping the US economy out in two ways:

1. Adding to the employment
2. Adds to the GDP of the country (Rucker, 2012)

How the retail industry impacts the economy can be studied in three ways:

1. Direct impact- measuring within the retail industry
2. Indirect impact- measured as the activity in other industries as a result of retail’s purchasing of inputs.
3. Induced impact- measured as the activity resulting from spending of income accrued as a result of retail industry’s activity. (Rucker, 2012)

Whatever the techniques used, studies indicate the huge impact of retail on America’s economy, as described below:

1. In terms of jobs alone, it contributes to 28, 113, 476 jobs and in terms of indirect and induced effects of retail industry, it contributes to nearly 41, 620, 604 jobs, which is almost a quarter of all available US jobs. Retail jobs alone generated around 1.49 trillion US dollars (Rucker, 2012)
2. Contribution to GDP: Retail hasa very profound influence on the GDP. It contributes to 1.20 trillion dollars. It is third in ranking in the top 3 GDP determinants, after real estate and manufacturing. Industries which are directly or indirectly impacted by Retail, contributes another 1.28 trillion dollars.(Rucker, 2012)

The latest research has indicated that retail sales has gained 0.2 % and jumped 0.7 % from previous values and improvement in consumer sentiment as well as consumer spending is also on the rise which bodes well for the economy. (Rucker, 2012)

- Across a 10 year span the retail sales from Year to Year show an almost average of 4.64 % with the sharpest decline between in December 2008 to -11 %. The highest the retail sales reached was in 1993 with 11 %. (“United States Retail”, 2013)