How Retail Sector Plays a key role in the U.S. Economy

The retail sector plays a key role in the U.S. economy, not only because consumer demand is an indication of a healthy financial system, but also because retailers serve as large employers. Nearly 10 percent of the national workforce in the U.S. is employed in the retail sector, which provides both long-term career opportunities for young people and seniors. Retailing serves also as a side job when people look to switch between career objectives.

No surprises then why the retail sector is greatly affected by consumer spending. Retail sales are highly sensitive to liquidity and preservation of capital. However, the recent real estate slowdown, the increase in energy prices, the tight credit lines and the general market uncertainty, all have led to a general slowdown of consumer-driven economic growth.

Generally, consumer spending is the driving force of U.S. economic growth and consequently of the retail sector. How much consumers afford to spend determines the profitability of firms and the viability of economy. The factors that affect consumer spending in the context of retail sector are numerous. Some are related to long-term changes in consumer habits and some are a confluence of an economy in recession and depressed consumer confidence.

One of the key factors that influence retail sales is the Internet. Online shopping has evolved into a major competitor of brick and mortar businesses as more and more shoppers do their research and shop online. Particularly, in the electronics industry the Internet has altered the purchasing habits of consumers. Large retailers compete on special promotions and discount offers struggling to offer superior customer service and top brand quality. However, consumers can find instantly and at considerably lower prices the same brands and products from the convenience of their home, without the added costs of excessive marketing campaigns and advertising.

The current financial turmoil is another factor that has caused a sharp decline in consumer spending. Consumers spend their money on discount stores instead of top-end retailers and in quick service restaurants instead of casual dining and white-tablecloth dining restaurants. Moreover, luxury retailers are experiencing a seven percent decline in global retail sales in 2009 after six years of growth and prosperity.

Overall, the retail sector is highly affected by the discretionary income of consumers, which is the amount of income they spend to cover their basic needs such as food, clothing and housing. In other words, if people cannot take care of their fundamental needs to survive, they are not willing to spend a single dime on luxury goods or on furniture, jewelry or electronics. The current market uncertainty has forced many retailers to get out of business and has led many households on the verge of poverty. Inevitably, the retail sector could not have been unaffected by a declining consumer spending and a sharp change in consumer preferences.

Contributed by Christina Pomoni
Owner, Editor in Chief & Writer @
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