Submission By:

Group E
Ashish Khurana(72)
Shamik Saha(97)
Shipra Rakesh(98)
Vivek Gupta(109)
Vutukuru Koundinya(110)
 Group E USA Retail Industry 2

Contents
Overview of Retail Industry USA ............................................................................................................. 3
Porter's 5 Forces Analysis ....................................................................................................................... 3
1. Threat of New Entrants ............................................................................................................... 3
2. Bargaining Power of Suppliers .................................................................................................... 3
3. Bargaining Power of Buyers ........................................................................................................ 3
4. Threat of Substitutes or Substitution.......................................................................................... 4
5. Competitive Rivalry ..................................................................................................................... 4
Michael Porters National Diamond........................................................................................................ 5
Firm Strategy structure and rivalry ..................................................................................................... 6
Related Support Industries ................................................................................................................. 6
Demand conditions ............................................................................................................................. 7
Factor Conditions ................................................................................................................................ 7
BCG Matrix for Retail Industry in US: ...................................................................................................... 9
Two Methods of Retailing in the Industry: ....................................................................................... 10
Integrated Responsiveness Matrix ....................................................................................................... 12
 Group E USA Retail Industry 3

Overview of Retail Industry USA

The retail industry is a sector of the economy that is comprised of individuals and companies
engaged in the selling of finished products to end user consumers. Multi-store retail chains in
the U.S. are both publicly traded on the stock exchange and privately owned.
Retail is the second-largest industry in the United States both in number of establishments
and number of employees. The U.S. retail industry generates over $5 trillion in retail sales
annually. The US retail sector is also one of the largest worldwide.

Retail trade accounts for about 12.4% of all business establishments in the United States.
Single-store businesses account for over 95% of all U.S. retailers, but generate less than 50%
of all retail store sales. Gross margin typically runs between 31 and 33% of sales for the
industry but varies widely by segment.

Porter's 5 Forces Analysis

Michael Porters Five Forces Analysis uses concepts developed in Industrial Organization (IO)
economics to derive five forces that determine the competitive intensity and therefore
attractiveness of a market. The Porter's Five Forces Framework analysis looks at the
bargaining power of buyers and suppliers, competitive rivalry in the industry, the threat of
new entrants to the industry and the threat of industry substitution.

1. Threat of New Entrants: Since the US retail industry is very large, it provides a large
scope to different players to customize their offerings. While the barriers to start up a
store are not impossible to overcome, the ability to establish favourable supply
contracts, leases and be competitive is becoming virtually impossible. Their vertical
structure and centralized buying gives chain stores a competitive advantage over
independent retailers. Big retail players like Walmart, Costco, Target, Home depot etc.
have gained a competitive advantage and new entrant poise less threat unless a new
player customizes its offerings or offers a niche to operate in.
2. Bargaining Power of Suppliers: The bargaining power of suppliers has weak intensity
in the retail industry environment. There are many suppliers in the retail
industry. Historically, retailers have tried to exploit relationships with suppliers. A
contract with a large retailer such as Wal-Mart can make or break a small supplier. In
the retail industry, suppliers tend to have very little power. The large population of
suppliers has strong potential to impact firms like Walmart. However, there are many
suppliers competing for the limited space in retail stores. Also, the high availability of
supply makes it difficult for suppliers to impact retail firms. Thus, Walmart and other
retailers face the weak intensity/force of the bargaining power of suppliers.
3. Bargaining Power of Buyers: Individually, customers have very little bargaining
power with retail stores. The large population of buyers makes it difficult for them to
 Group E USA Retail Industry 4

impose significant pressure on retail firms. Retail firms must address the following
external factors concerning the bargaining power of buyers or customers:
1. Large population of buyers (strong force)
2. High diversity of buyers (weak force)
3. Small size of individual purchases (weak force)
The large population of buyers exerts a strong force on the retail industry. However,
the weak force of buyer diversity and the weak force of small individual purchases
counteract such condition. In effect, the bargaining power of buyers is weak in
influencing retail firms.
4. Threat of Substitutes or Substitution: The threat of substitutes or substitution has
weak intensity in affecting the retail industry environment. The tendency in retail is
not to specialize in one good or service, but to deal in a wide range of products and
services. This means that what one store offers you will likely find at another store.
Retailers offering products that are unique have a distinct or absolute advantage over
their competitors. The growth of the e-commerce giants like Amazon has been giving
a tough competition to the brick and mortar industry.
5. Competitive Rivalry: Retailers always face stiff competition. There are many firms of
different sizes competing in this industry environment. There were around 3.6 million
retail establishments in the United States supporting more than 42 million jobs in the
2015. The slow market growth for the retail market means that firms must fight each
other for market share. More recently, they have tried to reduce the cutthroat pricing
competition by offering frequent flier points, memberships and other special services
to try and gain the customer's loyalty.
 Group E USA Retail Industry 5

Michael Porters National Diamond

An economical model developed by Michael Porter in his book The Competitive
Advantage of Nations, where he published his theory of why particular industries become
competitive in particular locations. Determinants of National advantage:
1. Government and chance - Important determinant for any investment decision.
2. Factor conditions-The nations position in factors of production, such as skilled labour
or infrastructure, necessary to compete in a given industry.
3. Demand condition- The nature of home demand for the industrys product or service.
4. Related and supporting industries The presence or absence in the nation of supplier
industries and related industries that is internationally competitive.
5. Firm strategy, structure and rivalry The condition in the nation governing how
companies created, organised, and managed, and the nature of domestic rivalry

PORTER DIAMOND FOR RETAIL INDUSTRY IN USA

Firms strategy,
structure & Rivalry

Factor Demand
Conditions Conditions

Related support
industries
 Group E USA Retail Industry 6

Firm Strategy structure and rivalry

Firm strategy, structure and rivalry refers to the basic fact that competition leads to
businesses finding ways to increase production and to the development of technological
innovations.

In USA, the concept of retail industry began in 1852 when the first dry goods store
was established as Marshall fields which was later called Macys Inc. Macys later
goes on to become the first store that introduces Thanksgiving Parade to
become the company that has the largest store in the world.
In 1962, the first Walmart store was opened. Now Walmart is the largest
company of any kind in the world.
Starting from just convenience stores, now US retail industry has the following
forms of retail
1. Retailers
2. Franchisers
3. Brick and Mortar stores
4. E-retail
5. Non-store Retail
Inference: However, the protectionist ideas and increasing costs of sourcing and
employment are forcing US Companies to shift to other countries and are also making it
difficult for the outside companies to enter US market.

Related Support Industries

Related supporting industries refers to upstream and downstream industries that facilitate
innovation through exchanging ideas.

US Retail industry is supported by many innovations from its inception

E-payments as a industry have helped the retail industry to grow in leaps and
bounds due to the advent of plastic money
E-commerce has bought in new definition to the retail market by providing
the customers with the much needed convenience.
As of May, 2015, 15.7 million people were employed in the U.S. Retail
Industry according to the U.S. Bureau of Labor Statistics. Despite a significant
number of store closings and retail company bankruptcies in 2015, retail
employment expanded every month in 2015, except for January.

The following industries have helped the growth of Retail industry and helped
it to gain a competitive advantage
1. E-payments
2. E-Commerce
3. Logistics and Warehousing industry
 Group E USA Retail Industry 7

Inference: USA has the necessary logistics industry that can help the cause of Retail
industry. The above mentioned industries have helped the retail industry to gain
competitive advantage at the national level.

Demand conditions
Demand conditions refer to the size and nature of the customer base for products, which
also drives innovation and product improvement

Total sales from the more than 3.6 million retail establishments in the United States
reached about $2.6 trillion in 2015, and retailers supported more than 42 million
jobs in the U.S
An estimated two-thirds of the U.S. gross domestic product (GDP) comes from retail
consumption. Therefore, store closings and openings are used an indicator of how
well the U.S. economy is doing overall.
In 2016, a significant number of store closings and bankruptcies are an indication of
both shifting consumer preferences, and an unsteady economy.
Total annual U.S. retail sales have increased an average of 4.5% between 1993 and
2015, according to the U.S. Census Bureau.
Walmart is not only the largest global retailer, it is also the largest company of any
kind in the world.
According to the 2015 Global Powers of Retailing report, 76 of the largest retailing
companies in the world are based in the U.S. That's compared to 81 U.S. chains that
revenues large enough to qualify them for the 2014 World's Largest Retailers list in
2014.
Some of these world's largest U.S. based retail chains operate domestically, but a
growing number of the large U.S. retail chains are establishing international retail
presence as well.

Inference: All the above points reiterate the fact that demand conditions are very bright for
the retail industry in US. This has been proven by the trend and the way retail industry is
contributing to the US GDP.

Factor Conditions
Factor conditions are those elements that Porter believes a country's economy can create
for itself, such as a large pool of skilled labor, technological innovation, infrastructure and
capital.
Porter argues that the elements of factor conditions are more important in determining a
country's comparative advantage than naturally inherited factors such as land and natural
resources.

Unskilled Labor: There had been a growing shortage of Skilled labor in the US Market
but the Unskilled labor are becoming the new economic resource for the country.
Governments policies in educational attainment are helping this cause and
increasing the unskilled labor
 Group E USA Retail Industry 8

https://www.theatlantic.com/business/archive/2016/08/a-resource-for-the-us-to-
tap-in-the-next-decade-its-low-skill-workers/494852/
Technological Innovation: US has always lead the forefront in terms of the
technological innovation that is happening in the world. Drones are changing the
way retail industry is working thanks to the innovation
The following 5 trends in innovation seem to rule the near future retail
1) Robotics
2) Drone Delivery
3) E-commerce Anti-fraud Tools
4) Block chain and bit coin
5) Visual/ digital assistants.
Governments role: Government of USA had been frowned at for its commitment
towards the implementation of Anti-trust laws
It is also being blamed for succumbing to lobbying politics regarding the decisions
related to Retail industry causing unfair advantages to people.

Inference: US shows a positive outlook towards establishing a business chain in retail

industry on account of the factor conditions being favourable.
 Group E USA Retail Industry 9

BCG Matrix for Retail Industry in US:

Generally, any business that sells finished merchandise to an end user is considered to be part of the
retail industry. Sales figures and economic data are sometimes reported separately for restaurants
and automotive-related businesses, but by definition they are considered to be members of the
retail industry as well. This is the 13 major types of retailing businesses, along with the percentage
of total sales each generates annually in the U.S. retail industry, according to the most recent figures
released by the U.S. Census Bureau:

20.0% - Motor vehicle & parts dealers

13.0% - Food & beverage stores
12.5% - General merchandise stores (hypermarkets, department stores, discount stores, and
warehouse clubs)
11.0% - Food services & drinking places
10.0% - Gasoline stations (and convenience stores)
9.2% - Non-store retailers (Internet shopping, catalog, direct sales, etc.)
6.0% - Building material & garden dealers (home improvement)
6.0% - Health & personal care stores (pharmacy/drug stores)
5.0% - Clothing & clothing accessories stores
2.3% - Miscellaneous store retailers (specialty retailers)
2.0% - Furniture stores
2.0% - Electronics & appliance stores
1.7% - Sporting goods, hobby, book & music stores

2.0% 1.0%
2.3% 2.0%
5.0% 20.0%

6.0%

6.0%
Size of the US Retail
Total 1
Retail Sales in
13.0%
9.2% Industry
2016: 5,484.9 Bil. US$

10.0% 12.5%
11.0%
 Group E USA Retail Industry 10

Two Methods of Retailing in the Industry:

Brick-and-Mortar Store Retailers Those engaged in the sale of products from physical locations
which warehouse and display merchandise with the intent of attracting customers to make
purchases on site.
Non-Store Retailers Those engaged in the sale of products using marketing methods which do not
include a physical location.
Examples of non-store retailing include:
Mobile-only retailing (m-commerce)
Internet-only e-commerce
Infomercials
Direct Response television advertising
Catalogue Sales
In-Home Demonstrations
Vending Machines
Multi-Level Marketing

Relative Market Market Growth

Domain GDP ($ million)
Share Rate
Sporting goods, hobby, book &
7.235 6.0% 26,237
music stores
Electronics & appliance stores 7.1 7.0% 43,984
Furniture stores 7.1 4.2% 25,783
Miscellaneous store retailers
6.965 2.0% 59,157
(specialty retailers)
Clothing & clothing accessories
5.75 4.7% 72,536
stores
Health & personal care stores
5.3 4.0% 58,965
(pharmacy/drug stores)
Building material & garden
5.3 6.6% 69,562
dealers (home improvement)
Non-store retailers (Internet
shopping, catalogue, direct 3.86 8.5% 128,927
sales, etc.)
Gasoline stations
3.5 1.0% 46,994
(and convenience stores)
Food services & drinking places 3.05 6.7% 314,572
General merchandise stores
(hypermarkets, department
2.375 2.0% 140,656
stores, discount
stores, warehouse clubs)
Food & beverage stores 2.15 6.5% 123,759
Motor vehicle & parts dealers 1 1.7% 131,289
 Group E USA Retail Industry 11

BCG Matrix for Retail Industry in US:

 Group E USA Retail Industry 12

Integrated Responsiveness Matrix

The integration-responsiveness (IR) framework suggests that two salient imperatives simultaneously
confront a business competing internationally.

An international business, to secure competitive advantages vis-a-vis the domestic firm, must exploit
market imperfections that are derived through multi-country capacities. However, given that the
international business is operating in multiple country locations, it must also be responsive to the
demands imposed by governmental or market forces in each location. From this conceptualization,
the essence of international strategy is framed by the response to or management of these two
imperatives: meeting local demands and capitalizing on worldwide competitive advantages.

Forces for Globalization and Local Responsiveness (I-R grid)

Pressures for integration

Pressures for Global Operational Integration:

o Technology intensity, scale economies
o Pressures for cost reduction
o Homogenous needs/tastes
Pressures for Global Strategic Integration:
o Importance of multinational customers
o Importance of multinational competitors
o Investment intensity

Pressures for local responsiveness

o Differences in customer needs/tastes

o Differences in distribution systems
o Needs for substitutes (regulations)
o Market structure (fragmented vs. concentrated market) o Host government
requirements
 Group E USA Retail Industry 13

Major businesses of US retail industry categorised as per the IR framework:

The framework reflects that the retail industry is majorly driven by focus on responsiveness
to local forces.
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