Retailing is one of the oldest businesses in the world. Historically, retailing was mostly a family business with the stores specializing in a particular category of products say grains, bread, meat, or furnishings. Over the years the business model began evolving. Retailing in the US during the 18th century mostly comprised ‘mom-and-pop’ enterprises. The latter half of the 19th century saw the emergence of a few department stores on the eastern coast. This period was also the beginning of the great migration westward in the US and branched innovative retail models including catalogue shopping, drug stores, and multi-brand retail outlets –albeit at an infant stage. Expansion of railroads eased the transportation of goods and retailers expanded across the country. One of the oldest departments stores still in operation, Macy’s, was established in 1858.
Retailing establishments are of several kinds. Some of the fastest-growing segments within the retailing landscape are apparel, home furnishings, office equipment, and toys.
Some retailers are involved in multiple segments while others focus on either a sub-segment or specialize in a particular niche. Let’s look at some of the categories and dominant players within them.
Megastores:
A mega store sells almost all kinds of retail goods. These are typically large establishments with their own sourcing, supply chain, and even financial arms. The largest of these are Wal-Mart and Target.
Established in 1962 by Sam Walton, Walmart is the largest company in the world by revenues, with $559 billion in revenues last year alone. The firm operates over 10,000 stores across the world. These include the Walmart supercentres – retail mega outlets offering a variety of services from meat, grocery, clothes, electronic equipment, pet food, and even include a banking outlet in most cases. Walmart discount stores are slightly smaller and offer general merchandise and groceries.
Target is one of the largest retailers in the US and generated over $100 billion in revenues last year. Target operates close to 2000 stores in the US. Target is known for its more urban facilities and brands itself a ‘cheap-chic’ retailer, selling fashionable designs at cheaper prices. The firm sells clothing, apparel, and cosmetics. Target stores also retail groceries, alcohol, home furnishings, electronic goods, and toys.
Source: Morningstar
Home improvement:
Home improvement stores are retailers of goods that are used in construction, remodeling, and other DIY equipment. The home improvement market is worth over $500 billion and is one of the fastest-growing markets. The largest players in this market are Home Depot and Lowes
Established in 1978, Home Depot owns and operates its big-box stores across the US and Canada. Home Depot retails a variety of construction materials and tools. It also retails exclusive brands such as Chem-Dry cleaning products, Behr paints, and American Wood mark cabinets. It also retails some of the most sold handheld, and power tool brands such as Makita, Techtronic, and Stanley Black and Decker. Home Depot had over $100 billion in 2020 revenues.
The second-largest home improvement retailer after Home Depot, Lowe’s operates over 2000 stores across the US. However, Lowe’s has a long history, with its original store established over a hundred years ago. Lowe’s big-box outlets sell a variety of DIY and professional construction products, recreational tools, and power tools.
Source: Morningstar
Grocery and Staples: retailing of groceries is available in most megastores and supermarkets in the US. However, a few of them have dominated the market in recent times. These include Kroger and Albertsons.
Established in 1883, Kroger is the largest grocery retailer after Wal-mart in the US. The firm operates over 2700 stores in the US and generated over $120 billion in revenue last year. The firm’s stores are more concentrated in the mid-west and southern states of the US. Kroger also operates 35 food processing facilities.
Albertsons was founded in 1939 and is headquartered in Idaho. The firm operates close to 2250 stores across the US and is the second-largest food retailer after Kroger. Albertson merged with Safeway, another large US retailer in 2015, to attain its current status. Albertsons had $7.5 billion in 2020 revenues.
Other major retailers in the US include the privately held Trader Joe’s, and Europe-based Aldi and Ahold.
Source: Morningstar
Wholesale retailers:
A special class of retailers exists in the US that is essentially warehousing businesses and offer a membership program whereby members get discounts on bulk purchases. The most famous of these are BJ’s and Costco. A third player, Sam’s Club is wholly owned by Walmart.
BJ’s is the largest membership-only retail chain in the US, with over 225 locations. The firm offers its members great prices on Electronics, Home, Furniture, Outdoor, Sporting Goods, Toys, Jewellery, Clothing and apparel, Health and Beauty products, and Groceries. BJ’s clocked over $15 billion in 2020 revenues.
Costco is one of the largest retailers in the US and offers cheap pricing to its members. Costco is famous for its meat products, organic foods, wine, and other alcoholic beverages. Costco operates over 800 locations across the world, including the US, Canada, Japan, Australia, and South Korea. The firm generated over $160 billion in worldwide revenues in 2020.
Source: Morningstar
Health and Drugstore:
Drugstores historically sold medicines, both prescriptions based and over the counter. Over the years drugstores have transformed into selling a variety of merchandise including grocery, beer, and alcohol, hope supplies, cleaning products, cosmetics, and hygiene products.
The largest players in this area are CVS and Walgreens
Established in 1963, CVS is one of the largest retail chains with over $130 billion in last year revenues. In addition to prescription pharmaceuticals, CVS sells a variety of OTC medicines, groceries, ready to eat and pre-packaged food, beer, and cosmetics.
This holding company operates the Walgreens and Boots chain of stores. The company was formed by the acquisition of a majority stake in the UK-based Boots Alliance by the US-based Walgreens in 2014. The business includes Walgreens and Duane Reade stores in the US, Boots stores internationally, and wholesale business Alliance Healthcare.
Source: Morningstar
Sporting Goods:
With its massive national parks and open roads, the US has historically had a culture of camping, outdoor activities, and sports. To cater to this demand there exist specialty retailers that sell sporting goods. The major ones are Dick’s Sporting Goods, and other branded retailers like Nike, Adidas, lululemon, and Under Armour.
Based out of Pennsylvania, Dick’s is the largest sporting goods retailer in the US, with over $9 billion in 2020 revenues. The firm sells a variety of goods including sportswear, sports equipment, camping gear, fishing gear, hunting gear, and accessories. Dick’s also sells arms and ammunition in several of its over 800 locations.
Source: Morningstar
Ecommerce and the road ahead for retailing:
The emergence of e-commerce has changed the face of retailing in the past several years. Many bricks-and-mortar retail players have adopted at least some form of e-commerce. The pure e-commerce players continue to innovate and improve the retail experience for customers. In just the third quarter of 2021 alone US retail e-commerce sales totaled over $200 billion, based on data from the US government census department. The largest operator in this is undoubtedly Amazon.
Amazon needs no introduction. The firm is the largest eCommerce company in the US. Amazon also plays a significant role in the grocery and food retail business with its acquisition of Whole Foods in 2017. In addition, the firm is pioneering AI-driven self-checkout stores under the Amazon Go brand, that sells grocery and general merchandise. Amazon also operates a few physical bookstores.
Most large US retailers have a significant presence online including Walmart, Target, Best Buy. Other pure-play e-commerce companies include eBay and Etsy.
Source: Morningstar
The e-commerce trend is not just restricted to the US but is a fast-growing segment in much of the world. Some of the largest e-commerce retailers include Alibaba and JD of China, MercadoLibre of Latin America, Rakuten in Japan, and the privately held Flipkart in India. Walmart of the US owns a majority stake in Flipkart.
Source: Morningstar
Investment Options:
Directly investing in a variety of retailing companies is one way of getting exposure to the sector. A range of ETFs are also available that offer a simple and easy to invest option. These include SPDR S&P Retail ETF (XRT), ProShares Online Retail ETF (ONLN), Amplify Online Retail ETF (IBUY), and VanEck Retail ETF (RTH).
Source: Morningstar
Previous Article
In the current scenario, one question on the minds of both investors and speculators is that are there more opportunities in the commodity space, or is it too late already?
The Russian invasion of Ukraine is the most aggressive military action to happen in the European region since World War 2. From the perspective of the capital markets too, this has been a dramatic event.
Public utilities are an absolute necessity and have predictable cash flows. In this article, we discuss the investment landscape and the key players within the utility sector.