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Quarter-End Insights

Consumer Cyclical: 4 New Realities for Retailers

Companies that can meet the new realities of retail likely have an economic moat, ultimately leading to better full-price sales and margin performance.

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  • We believe the market has appropriately priced in consumers' current spending capacity across the globe. We've adopted a balanced outlook for consumer spending for the 2014 holiday season, acknowledging positives in the continued decline in unemployment trends and a relatively stable housing market in the U.S. but also questions about the macroeconomic environment across Europe and Asia Pacific.
  • In our view, a fundamental shift in shopping behavior, highlighted in last year's holiday season, has resulted in increased value orientation among consumers, demand for convenience, market share competition from other categories, and volatility in demand for products. Companies that can meet these new realities likely have an economic moat, ultimately leading to better full-price sell-through and margin performance.
  • We believe mobile devices are poised to be the next great disruptor in the retail space based on mobile penetration rates, retailers' use of mobile devices to enhance the in-store experience, and mobile payment developments.
  • While we believe mobile devices will help to make retailers more competitive over a longer horizon, we ultimately believe that fulfillment is an area where retailers still have much ground to make up on  Amazon (AMZN). Despite retailers' increased emphasis on logistics and delivery speeds in 2014, only a few retailers can match its capacity and geographic reach, most retailers' fulfillment centers were not designed for e-commerce, and Amazon's inventory productivity across a wide breadth of products is unprecedented.


R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.