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Macroeconomic forces buffet the mass market

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Midsummer is usually a period when the frequency of newsworthy developments in the retailing business dwindles, but the last several weeks have brought with them a spate of significant events.

CVS Caremark agreed to buy Navarro Discount Pharmacy, at once strengthening its position in Florida and raising its level of expertise in reaching Hispanics, the fastest-growing demographic group in the United States. Shoppers Drug Mart president and chief executive officer Domenic Pilla announced plans to leave the company by the end of the year, to be succeeded by Mike Motz, who is now senior vice president and chief merchandising officer.

And two veteran executives integral to the success of their company, Kermit Crawford, president of pharmacy, health and wellness at Walgreens, and Frank Vitrano, executive vice president and chief financial officer at Rite Aid, set out the timetable for retirement.

Crawford will depart at the end of the year. Vitrano, who has been succeeded as CFO by Darren Karst, will remain at Rite Aid as chief administrative officer until September 2015.

If a variety of factors motivated those moves, an underlying theme is discernible in three other major retailing stories: Brian Cornell’s appointment as chairman and CEO of Target, the selection of Greg Foran to succeed Bill Simon as head of Walmart U.S., and the sale of Family Dollar.

Common to all three companies is the difficulty they have encountered in generating meaningful sales gains, particularly on a comparable-store basis. While circumstances
at each retailer are different, all of them have struggled to get shoppers to spend more money.

Target, Walmart and Family Dollar — which is being acquired by Dollar Tree in a transaction valued at some $9.2 billion — have, like their peers, had to contend with an extremely challenging business climate. The proliferation of new technology has empowered consumers and given them more ways and places to shop than ever.

Concurrently, the Great Recession has hobbled economic activity. The crisis that rocked the housing and financial sectors in 2008 triggered persistently high unemployment, which still stands at 6.2%, and wage stagnation for the majority of Americans. That, in turn, put a lot of pressure on consumers to trim their sails.

Optimists predicted that the downturn, although more severe than most, was cyclical, and retail spending would rebound with the overall economy. There is, however, evidence that larger structural forces are at work.

A compelling new book by Thomas Piketty, a professor at the Paris School of Economics, examines long-term economic trends and their impact on the distribution of wealth. Based on analysis of data from the 18th century to the present, Capital in the Twenty-First Century has troubling implications for anyone with a stake in a vibrant mass market.

Piketty’s research, much of it, as the author acknowledges, conducted together with other scholars, confirms the widely held perception that the gap between the wealthiest individuals and everyone else, in both the United States and western Europe, is widening, and that the “one percent” in this country controls as high a percentage of income as it did at the close of the Gilded Age.

The growing disparity reverses the macroeconomic trends that coincided with the boom years of mass market retailing. To cite just one example from Piketty’s lengthy, complex survey, the top decile’s share of the national income was less than 35% from the 1950s through the early 1980s, and has since risen to 50%, the same level as before the Crash of 1929. Is it a coincidence that those decades were the time when the three leading discounters were established and grew to prominence, and Walgreens, CVS and Rite Aid morphed from family-controlled drug chains into big businesses?

If indeed there is a link, the reemergence of patterns similar to those that were evident during the first decades of the 20th century could spell trouble for mass retailers. Whether or not one agrees with Piketty’s conclusions, the evidence he has assembled is impressive and provides much to think about. Effective retail leaders need to influence the macroeconomic environment as well as the companies they head.

Ben Bernanke, who as chairman of the Federal Reserve helped guide the country through the recent economic storms, will be the featured speaker at the business program at the upcoming NACDS Total Store Expo. What he has to say about the problem of income inequality should be of great interest to everyone in attendance.


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