There are many kinds of retail, from department stores to coffee machines, from the town square to the digital storefront, from the most promising transformations to the possibility of an apocalypse. Let’s explore the retail sector and its unique characteristics in this post.
As a litmus test for an economy’s health, the retail sector is often called one of the most important sectors for a country’s economy. An economy that is working well has high production and, consequently, high consumption, which is mostly focused on retail. Because of this, retail is one of the first sectors to contract during times of crisis. When consumption goes down, operators whose businesses are based on selling food or consumer goods suffer revenue cuts, which ultimately result in job losses.
Even though retail plays a central role in developed economies, one thing should not be taken for granted: what is retail? If we look closely at this segment, it is more complex than what you might expect, also in light of the enormous changes that have occurred in recent years as a result of digital transformation.
Definition of the Retail Industry
So, let’s start by defining the term “retail.”
We define “retail” as the market for the sale of goods or services by a retailer directly to a customer. Most of the items and services are purchased for personal use or for the family.
You can be a retail or institutional retailer. They both share one thing in common: they involve a large number of small transactions. Wholesale markets cater to businesses (and not to individuals); some companies are involved in both activities simultaneously.
Among the top retailers in Italy, cited examples include large companies such as Coop, Esselunga, and Coin. Although these are large-scale retailers, they are not a good representation of everything that’s available in the market. The fact is that there are many retailers of different sizes who offer various goods. Next, we have to acknowledge that retail is an extremely diverse section of the economy.
Five Types of Activities, One Sector, Three Segments
The retail market is characterized by three major macro-areas:
- This includes all activities related to distributing food and related products to consumers
- A consumer good may include all the activities that sell items that are re-usable over time.
- Consumer durable goods include long-lasting products such as household appliances, furniture, and cookware.
This is by no means the only distinction that can be made within the field.
While retail is inherently a B2C market, there are many ways to achieve it. In light of this, we can distinguish further within the retail sector. In terms of retail types, we can identify at least five different types of activities.
- Retail that has a fixed location is the first. It’s the traditional store where products are sold. Typically, this kind of retail can be found along street streets or in shopping centers.
- Supermarkets are the second category of retail. There’s a much wider variety of products available in this case, from housewares to technology and food.
- Thirdly, discount stores fall into this category. Although discount stores are similar to supermarkets, these stores are more oriented towards food and specialize in “off-brand” goods, which are sold at a lower price than supermarkets.
- The fourth category consists of temporary shops. Such businesses are often open for a limited period of time and are usually located in high-traffic areas. This is because temporary shops are often used as part of a marketing strategy, whose purpose is to launch a new product on the market or consolidate a certain brand.
- Vendors fall under the fifth category. As a result, this store does not exist and the service is entirely automated. Vendor machines are now offering more products than they did in the past. These products range from food and pharmaceuticals to small items.
We cannot ignore the fact that over the last few years, new, increasingly important retailers have entered the market if these are the major, traditional retailers in operation today.
Welcoming you to the Digital Square
In addition, retail has adapted to take advantage of the opportunities provided by digital transformation as the Internet has gained popularity. As a result, two categories have been added.
In the sixth category is internet retail, which basically consists of online platforms where you can browse and buy products online, and then have them shipped to you. On closer inspection, and in some cases, these platforms are nothing more than the digital extensions of physical stores, which is why many retailers envision the integration of both traditional and digital sales channels in their business to increase the number of consumers who can theoretically buy as well as reduce inventories at the same time.
Actually, the seventh category can be considered part of the sixth. As a result, mobile online retail business industry businesses are based solely on smartphone apps that allow consumers to purchase products instantly without accessing a web browser. It’s rare that a retailer has only mobile sales as the only channel of sales here, too, as it’s rare with e-commerce.
Overall, retailers are integrating various retail categories as much as possible, so consumers can buy in both physical and online stores.
In general, digital transformation has been a positive one for retailers, since it allows them to sell more products to a much wider audience, including a global one. Not necessarily, however.
Recent surveys suggest that around 50 million Italians use the Internet – nine out of ten. This number is on the rise. Over 93% of them have visited at least one online store using any device, and 77% of them purchased something online, using a personal computer or smartphone, last year. With these statistics in mind, it is not surprising that consumer goods purchased through e-commerce platforms have increased in value this year, reaching $15.83 billion, whereas the average per capita spending has remained fairly steady at around $400. The number of online shoppers is also rising steadily in 2019, with more than 39 million consumers.
All of these facts suggest that retail is one of the few, if not the only, sector that has benefited from digital transformation, unlike sectors like banking, finance, and, above all, telecommunications. But this is not always the case.
The pace at which digitization is growing in Italy and around the world has significantly accelerated the growth of this particular retail segment in Italy and around the world.
There has been a 30% growth in e-commerce in Italy, and the trend does not seem to be waning (source: e-commerce monitor. it). In Italy, the e-commerce industry generated revenue of 140% greater in 2018 than in 2015, and it is expected that by 2023, revenue will continue to grow across all segments, particularly electronics, clothing, food, personal care products, and household appliances.
In spite of this, traditional retail is not in the same condition.
The competition from supermarkets and large retailers, in general, has reduced the market share of smaller retailers for quite some time. Digitalization has also given rise to new competitors who threaten both the small neighborhood shop and the large retailers.
For some time now, we have been talking about e-commerce taking over physical stores, referred to as the “retail apocalypse.” Especially evident in the United States is an entire website that catalogs all of the “dead” shopping malls. Despite the fact that some economists have minimized the issue, it is undeniable that the sector has suffered. Visits to shopping centers have declined by 50% in the US between 2010 and 2013). There is also talk of an Italian-style retail apocalypse, highlighting how shopping center revenues have fallen from a maximum of 6.4% to 5% in 2019.
Is E-commerce to Blame?
The advent of e-commerce cannot explain this situation all by itself.
As a result, external factors, such as the gradual slowdown of economic recovery over the past few years, as well as consumer tastes and habits, which seem to favor more personalized experiences, whether online or offline, have also contributed, leading them to rediscovered smaller and less “serial” retail outlets.
Regardless of the outcome, digital transformation, when used correctly, can become an incredible opportunity for all retailers, especially for the smallest ones, who will be able to reach many more customers and make their products much better known. This type of transformation also seems to be well received by the consumer.
Taking advantage of digitization will require market players to understand what needs to change. There are definitely no simple solutions to this challenge, but there are some guidelines and trends that you can try to follow to take advantage of the market. This will be the topic of an upcoming post. Keep up with us on social media to know what we’re talking about next.