NEW YORK, June 23, 2016 /PRNewswire/ -- Since 2010, volatility in the retail industry has increased 250 percent, resulting in $200 billion more of retail sales being "traded" among competitors, according to Deloitte's "Retail Volatility Index" (RVI).
Volatility – a measure of disruption in the industry – is now being driven by fragmentation of market share as small and mid-level players collectively steal share from traditional retailers – rather than the consolidation of the big getting bigger, which has driven the industry for the last 100 years.
"Traditional retailers are being subjected to death by a thousand paper cuts where the competition is no longer the big box retailer across the street, but rather a myriad of new players – this represents a sea change for the industry," said Kasey Lobaugh, principal, Deloitte Consulting LLP and chief retail innovation officer. "Conventional wisdom might also say the loss of share by traditional retailers is simply an online vs. bricks-and-mortar battle, with traditional retailers losing the e-commerce game – which our research also shows to be untrue."
Out of the top-25 brick-and-mortar retailers, sixteen have robust and growing e-commerce sales that have consistently outperformed the broader e-commerce retail market. Between 2010 and 2015, these brick-and-mortar retailers grew their e-commerce business by an average of 20.9 percent, compared with a 15 percent growth rate in the overall market – indicating these retailers are actually taking share from those others who operate in the e-commerce space.
"On the surface, the broader retail market appears tepid, but underneath that surface, there is a lot of commotion," said Jacob Bruun-Jensen, principal, Deloitte Consulting LLP and co-author of the study. "When measured at its full depth, the market has become highly volatile and increasingly fragmented. Rather than a give-and-take among the top 25 retailers, there are numerous forces at play, and share is no longer just changing hands and consolidating with the big retailers."
Barriers to entry have fallen which has fueled fragmentation. Fragmentation in particular gives smaller retailers the upper hand in the market as they focus on niche products and experiences compared to the big retailers who cast wider nets. Not all is lost for larger retailers though; looking deeply at the set of retailers studied, Deloitte found that while the top retailers who offer the most differentiated product and experience (versus those who compete more so on value and convenience) show the highest compound annual revenue growth rate and margins, substantially beating the broader market.
For more information about Deloitte's Retail Volatility Index, view the full report here.
About the Study
Deloitte's Retail Volatility Index incorporates a concentration index and volatility index methodology. The concentration index methodology utilizes the Gini coefficient to indicate how the distribution of retail market share has changed from 2007 - 2015 for the top 120 - 140 retailers. To measure market concentration in this study, the Gini coefficient was used to indicate how the distribution of retail sales has changed within the top 120 - 140 retailers (based on sales) from 2007 - 2015. The volatility index measure is based on year-over-year weighted standard deviation of market share change.
About Deloitte's Retail and Distribution Practice
Deloitte is a leading presence in the retail and distribution industry, providing audit, consulting, risk management, financial advisory and tax services to more than 75 percent of the Fortune 500 retailers. With more than 2,400 professionals, Deloitte's retail and distribution practice provides insights, services and approaches designed to assist retailers across all major subsectors including apparel, grocery, food and drug, wholesale and distribution and online. For more information about Deloitte's retail and distribution sector, please visit www.deloitte.com/us/retail-distribution or follow us @DeloitteCB
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world's most admired brands, including 80 percent of the Fortune 500. Our people work across more than 20 industry sectors to deliver measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to make their most challenging business decisions with confidence, and help lead the way toward a stronger economy and a healthy society.
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