Evolving Retail
As retail sales growth slows this year to about a 3% pace after a 5% gain in 2004 ...
A dramatic shakeout is getting started. It will significantly thin the ranks of store chains over the next five years or so.
Change will rumble through the economy, forcing thousands of retail suppliers to adapt and pushing consumer products makers to merge. Landowners will redevelop malls for new uses, and good space for small merchants will vanish.

Hardest hit: Mid-tier department stores squeezed out by discounters and luxury chains. The Sears-Kmart merger and a probable marriage of May and Federated are two recent examples.
Supermarket chains are getting pounded by discount food sellers such as Wal-Mart and Costco. Wal-Mart food sales are some 10 times higher than those of many food chains, including A&P, Pathmark, and Winn-Dixie.
Also on the endangered list: All types of specialty outlets ... consumer electronics, linens, cosmetics, toys, auto parts, furniture. Discounters are extending their reach in these areas at a fast clip.

The number of shopping centers faces a thorough winnowing. Up to a quarter of the current 47,000 centers may fall by the wayside. And every time a Lord & Taylor, Sears, or specialty store disappears, its host mall loses a magnet that generates vital customer traffic.
But total retail space will hold steady. Discounters will plan to open more megastores and small urban outlets to lure city dwellers.
Defunct malls will become residential projects or office complexes with limited retail space.

Suppliers will feel more pressure to cut prices and endure less secure buying relationships. Far fewer retailers will guarantee shelf space in exchange for slotting fees. That’ll cut costs for suppliers but also increase uncertainty. Suppliers of consumer products have to bulk up to gain clout in negotiating with big chains. The merger of Procter & Gamble and Gillette is just the beginning. Johnson & Johnson, Nestlé, GE, and other big players may go shopping, too.

Strong Internet sales growth is reinforcing retail consolidation as increasingly demanding consumers find it easier to comparison shop.
Cybersales will increase about 20% annually through decade’s end and account for at least 10% of total retail sales, up from 5% last year.

Lending
Banks are rolling out new loyalty rewards for business customers:
Credits for stuff they’d otherwise buy ... office equipment, telephone systems, and the like ... redeemable with participating vendors. In return for credits, customers give the bank all of their business.
Consumers will get more goodies, too ... airline mileage points, gift cards, and more. Free toasters aren’t going to draw business anymore.
Banks are integrating their records to keep track of services provided to customers by different departments. Without the full picture, lenders don’t know how many credits their best customers are entitled to.

Free credit reports will be available nationwide by September 1. Federal law requires that the three major credit-reporting bureaus allow you to get a free annual copy of your credit report by then. Residents of some states are already eligible. More will be in March and June, and all by Sept. File requests at www.annualcredit-report.com. Don’t be duped by any pop-up ads that could lure you to a bogus Web site.

Shipping
U.S. companies are becoming vulnerable to supply disruptions.
Manufacturers and retailers run a major risk if they rely heavily on one or two suppliers of critical parts or services. Delivery delays due to an airline collapse, port security problem or unexpected snafu involving an overseas supplier are just some of the growing concerns.

There are several steps you can take to reduce the threat:
Line up additional suppliers of critical materials and services. Having a second or third vendor may cost a bit more in the short term but will save far more if there is a breakdown in just-in-time delivery.
Know your supplier, an assignment that requires an extra effort if it’s an overseas firm. Check their books, references, and facilities.
Consult a specialist who can point out potential weak spots in sourcing, production, and distribution. Odds are good that your costs will be recouped and then some by identifying waste and inefficiency.

© 2005 The Kiplinger Washington Editors, Inc.