Market Challenges And Opportunities

Restraints & Challenges:

Rising Real Estate, Operating Costs and Taxes
Supply Chain Disruptions and Inventory Issues

Taxable Retail Market Drivers:

Growing Consumer Spending and Disposable Incomes: Rising disposable incomes and growing consumer spending are major drivers of the taxable retail market. As households have more discretionary income, they are able to spend more on retail purchases of goods like clothing, electronics, home furnishings, leisure activities, dining out, and more. For example, US personal consumption expenditures increased steadily over the last decade, fueling retail sales growth. Higher incomes also enable consumers to trade up to more premium offerings. Additionally, low unemployment rates and strong labor markets in recent years have supported rising disposable incomes in many regions. This results in more consumer confidence and willingness to spend. According to Euromonitor International, in 2022, global disposable incomes and expenditure per household are both expected to grow 2023-2025 by 2.6%.

Increasing Internet and Smartphone Penetration: Widespread internet and smartphone access has been a significant driver for the taxable retail market by enabling consumers to shop online anytime and anywhere. High-speed broadband connections allow for richer digital experiences. Mobile commerce is especially disrupting the retail landscape, with eMarketer forecasting retail m-commerce sales to exceed $3 trillion globally by 2025. Retailers who leverage omnichannel strategies tend to gain market share. Social media also influences retail as consumers turn to platforms like Instagram and TikTok for inspiration, recommendations and engagement. According to Pew Research Center, in 2023, although 100% of users now access the internet through mobile devices, the utilization of other gadgets like tablets, streaming devices, and 'smart' devices has increased from 8% in 2021 to 13% in 2022.

Taxable Retail Market Opportunities:

Expanding Further into Emerging Markets: With factors like rising incomes and younger demographics, emerging markets offer enormous room for growth versus mature markets. Tailoring products and marketing for regional nuances provides an advantage. Partnerships with local retailers and distributors can enable market entry and expansion. Categories like apparel, consumer electronics, and personal care products have high growth potential as aspirations and middle-class lifestyles rise. Capturing market share early on among emerging middle-class consumers tends to engender long-term loyalty as economies develop. According to Reuters, the growth forecast for the emerging market and developing economies in July 2023, has been revised upward to 4.0%, which is 0.3 percentage points higher than the October 2024 projection and 0.1 percentage point above the 3.9% estimate for 2022.
Private Label and Direct-to-Consumer Offerings: Private label merchandise allows retailers to diversify into higher-margin categories under their own brands tailored to customer needs. For example, Target’s popular private-label brands now account for nearly one-third of sales. Direct-to-consumer models also present an opportunity to build deeper customer engagement and capture more value. Vertical integration can help retailers lower costs as well. Avoiding third-party intermediaries gives retailers more control over their brand experience. Private label and DTC strategies will open up differentiation and profitability opportunities. According to NIQ Data, sales of private-label food products have experienced a notable 16% growth over the 2020-2021 two years, reaching a total of US$ 135.5 billion as of March 2022.

Taxable Retail Market Restraints:

Rising Real Estate, Operating Costs, and Taxes: High real estate costs to secure prime locations remain a major restrain, especially with store footprint sizes shrinking. Rising property prices and commercial rents squeeze profit margins. Operating costs from labor, utilities, and inventory management also curb profitability. Local governments applying special taxes on retailers or raising sales tax rates additionally dampen consumer spending power. Tax policy reforms to support retailers could help alleviate cost pressures.

Counterbalance: Diversify your investment portfolio to include a mix of different asset classes such as stocks, bonds, and commodities. This can help to offset the risks associated with rising real estate costs.

Supply Chain Disruptions and Inventory Issues: Recent supply chain bottlenecks stemming from COVID-19 impacts, climate events, labor shortages, and more have made it difficult for retailers to maintain optimal inventory levels. Out-of-stocks and excess inventory due to forecasting challenges impact revenues. Shipping delays alienate consumers. Supply chain visibility tools and resilience against disruptions are imperative. Building agile omnichannel fulfillment capabilities provides a competitive edge. Inventory optimization also helps retailers improve margins.

Counterbalance: In a taxable retail market facing supply chain disruptions and inventory issues, implement an effective inventory management system to track and manage your stock levels. This can help to prevent overstocking or understocking issues.