Zacks Industry Outlook Highlights: Macy's, Ralph Lauren, V.F. Corp and Urban Outfitters

Chicago, IL - November 13, 2015 - Today, Zacks Equity Research discusses the Retail (Part 2), including Macy's ( M ), Ralph Lauren Corp. ( RL ), V.F. Corp . ( VFC ) and Urban Outfitters Inc. ( URBN ).

Industry: Retail (Part 2)

Link: http://www.zacks.com/commentary/62216/will-new-consumer-practices-change-the-face-of-retail

The retail world is about to undergo a major makeover in the near future as everything from consumer taste to buying habits to business environment is experiencing a sea change. Among the many challenges that have plagued the industry, a decline in footfall at the brick-and-mortar stores is crucial. Further, with the rise in shopping avenues like smart phones, tablets, online and others, the problems of retailers have only bloated up as they try to satisfy consumers' desire to shop across multiple channels, while at the same time improve store productivity.

This has divided the retailers into three categories - brick and mortar only, combined (ones having both brick and mortar and online presence) and online only.

While the brick-and-mortar only stores are on the verge of extinction, the combined stores perceive the growth of online channel as a major challenge for its brand. Consequently, the merchants have embraced diversification and innovation to stand out and grow in a competitive market. Some of the issues that await the retail industry are elaborated below:

Online vs. Offline Issue: While retailers today are exploring every option to bridge the gap with customers, the challenge here is to establish a real-time retail model across multiple touch-points to provide a seamless shopping experience. Though most retailers are on track to develop an omni-channel platform, there still remain questions about how efficiently it will work for retailers and whether it will turn out to be profitable?

The rise of this channel has heightened consumer expectations and simultaneously problems for retailers. Today, retailers must provide a blend of online and offline experience to engage customers. Moreover, along with an impressive product assortment, pricing, shipping, returns and promotional offerings, it is necessary to introduce personalized customer services in order to satisfy consumers.

Improving Security of Payment Systems, Minimizing Cyber Risk: With the rise of point-of-sale (POS) systems and online transactions, there has been a significant rise in the number of data breaches. As a result, customers now prefer to shop with retailers that assure security of their personal data.

As data breaches pose a significant question on the reputation of a retailer and at the same time risks the personal data of customers, it has become necessary to address this issue with conviction. Accordingly, retailers are now focusing on adopting payment systems that provide increased security.

Customer Experience: Today's customers are well-informed, thanks to the increased access to online portals that provide every detail regarding the products, ranging from price to reviews. This, along with the fact that every product has some or other alternative makes it difficult for store personnel to convert an in-store sale.

Additionally, customers these days have high expectations as they want the best product at a reasonable price, assured availability, speedy delivery and more. These factors might hinder the process of driving store traffic and providing the best shopping experience to customers.

A Highly Promotional Environment: The retail industry is highly competitive. To counter competition, retailers resort to excessive and often unplanned promotions that can largely impact sales and erode margins. This is a common scenario during the holiday season, in which retailers proffer huge discounts and offers to meet short-term top-line targets and steal share from competitors. However, increased use of such promotions comes at a price, especially as consumers today are unwilling to pay full price for the products.

Maintaining Efficient Workforce: In the retail industry, where a salesperson is more like an asset than staff, recruiting a disciplined workforce and maintaining their productivity is very difficult. Retailers generally find it challenging to spot good staff in the first place, and even if they succeed in the process, retaining them becomes tedious. To counter this situation, it is advisable to recruit back-up staff to fulfill any turnover instantly. Additionally, training these personnel with the latest technologies is essential in improving productivity.

Macroeconomic Issues: Though the U.S. economy is gathering pace with a favorable labor market and lower fuel costs, there is the threat of underperformance from the global macroeconomic environment which is dealing with a slowdown in China and a struggling Eurozone.

Apart from this, foreign currency headwinds are playing a spoilsport for retailers with overseas operations. The impact of negative currency translations was evident in the third-quarter results and outlook of most retailers, as they expect the U.S. dollar to remain stronger through the rest of 2015 and into 2016. Macy's ( M ) weak guidance partly reflects this headwind.

Retailers, like Ralph Lauren Corp. ( RL ), V.F. Corp. ( VFC ), Urban Outfitters Inc. ( URBN ) and many others, are now keeping their fingers crossed in anticipation of adverse impact of foreign currency translations on margins.

Bottom Line

As you can see, there are plenty of reasons to be worried about the retail industry. However, we believe retailers that treat these threats as opportunities will emerge as winners in the transformed retail space.

Check out our latest Retail Industry Outlook here for more on the current state of affairs in this market from an earnings perspective, and how the trend is looking for this important sector of the economy now.

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MACYS INC (M): Free Stock Analysis Report

RALPH LAUREN CP (RL): Free Stock Analysis Report

V F CORP (VFC): Free Stock Analysis Report

URBAN OUTFITTER (URBN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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