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What is next for the retail industry?

With retail sales expected to grow at an annualised rate of 5.6% this year, a new report by analysts at Nomura says the industry needs to focus on growth in the next two to three years.

The report, entitled Retail Next, finds the industry is “under pressure” and the challenges facing the industry will be significant if it is to reach its goals.

The report states that the retail business is “still in a challenging time” with the “very weak fundamentals of the sector and a number of factors that have contributed to this” such as a low rate of return on assets and high debt levels.

“In the past, the retail sector has been able to focus primarily on building value and growth, but this is no longer the case,” Nomura analyst Michael Chisholm said in a statement.

Nomura analyst Kevin Cate said the industry needed to take a step back from the growth trajectory of the past couple of years, which have seen the number of stores increase by more than 25% a year.

“The pace of growth has slowed, and with the retailing sector struggling to retain the growth in market share it has become increasingly difficult for the industry to maintain its competitive edge,” Mr Cate wrote.

“As the retail environment becomes increasingly complex, the opportunities to create value and drive growth are becoming increasingly limited, and the business must adapt to these changing circumstances.”

Nomira said it is critical the industry adapts to the changing nature of retail.

Its report says it is imperative that retailers work closely with other industries to identify, understand and support the business model and to identify and understand key growth drivers and drivers of the future.

“This will help ensure the industry remains competitive, adapts and is successful, and that it can continue to provide value to consumers,” Mr Chisholl said.

Mr Cate added that the future for retail is uncertain, but it is likely to be dominated by technology.

“While the retail market is still in a very challenging time, it is important to recognise that the sector is poised to continue to expand, and it is the retailers that will be most impacted by the change,” Mr Sholm wrote.

Key points:Nomua expects retail to be more competitive in the coming years, but the sector needs to adapt to the changes of the marketMr C, Mr Chicholm, Mr Sholl and Mr Chichell say the industry’s growth has been slowed in the pastTwo analysts say the future of retail is likely dominated by mobile technology”With the current low rate rate of growth, it will be difficult for any retailer to maintain their competitive edge, and there will be limited room for further growth,” Mr Pate wrote in the report.

“[But] if the industry does not adjust its business model, it may have to adapt further to adapt the future.”

A survey of 2,000 consumers by Deloitte found that a majority of respondents think that online retailers such as Amazon, Target, and Best Buy are the best for their consumers.

The research also found that Australians expect the digital retail industry to grow to 7.7% of total retail spending by 2020.

As the industry continues to struggle to grow, it has also been forced to adopt the use of mobile technology.