Business Situation Largest retailer in US sells wide range of products from hardware to sporting goods to grocery & fresh fruits and vegetables every week Fresh citrus fruits departments have stable business but seasonal fluctuations happens due to the supply chain. The predominant categories are fresh orange & lemons During the last quarters, citrus fruit department experienced a 50% dip in sales compared to the same quarter in last year. Given that US economy is coming out from downturn.
Problems need to be address What are the possible root causes of the declined sales? Is 50% drop in sales YoY a cause to worry? Will it continue in future quarters or is it a temporary phenomenon?
Assumptions Lets assume that retailer sales only citrus fruits: Orange & lemon Lets say that US national income divides GDP into four categories Y= C + I + G + NX Where C is consumptions I is investment G is Govt. Purchase NX is net export
Economic IndicatorsMacro economic Indicators Micro economic Indicators National Income The dynamics of supply & Price Unstability demand Store location & footfalls Interest rate charged Competitors promotions
Macroeconomic Indicators National Income:-Large retail sales have a tendency to follow the trend of GDP growth & reduction. This make sense because consumption can make up a significant amount of GDP, that would peg directly into one ‘s another, however it is not always true. Price Unstability:- Growth in retail sales isn’t necessarily growth, but sometimes it can simply be inflation. By dividing out the inflation you could actually get negative growth rate. As expectation for inflation are increasing , stores slowly raising their price and this leads to overall higher net sales. But simply inflation not really increased performance. Interest rate charged:- Interest rate rise are beginning to affects the customer willingness to spend. People are simply saving and invest more instead of consuming, that hits large retail companies.
Microeconomic Indicators Supply & Demand force:-They determine how to buyer & seller interact to each other and also determine the quantity of each good produced and the price that it is sold. This is one of the very important indicator that drives sales of large retails. As per assumption Total sales of retail=sales of orange + sales of lemon Y = Po*Qo + Pl*Ql Here drop in sales indicate that only half of the orange & lemon has been sold in this quarter compare to last year. It means store have surplus amounts of orange & lemon to supply, due to shift in demand. Store Location:- It may be cases of retailer has open new stores where footfalls prefer other low cost branded beverage Competitors:- Since Orange & lemon are perishable and retailers suppose to sell it fresh. It may be the case of stores of competitors are selling these fruits with lower margin because of ample supply and low demand.
Potential Solutions:-Macro economic Factors Micro economic Factors Due to upward movement of It can be the case of store’s brand economy , Income can have product sales has gone down relative increased and people may have to well known brands or vice versa started spending on expensive Store footfalls prefers sweet fruits outlets and branded fruits juice beverage compare to citrus fruits Interest rate charged or offered can beverage be higher and people may have Competitors are offering more started investing customize beverage with low margin
Conclusion… As economy(GDP) is moving upwards we may say that there would be more jobs, high income level, high consumption of expensive goods & more outputs AND it reverse at economic downturn. When we look at the nature of US economy, we may simply say that it is consumption driven economy and consumer need more money in hands. Decline in sales of citrus fruits can be due to the Macroeconomic factors. And this is cyclical phenomenon. Due to the Micro economic factors it can be the situation of ample availability of orange & lemon to consume because of demand has shifted. Sales of well known branded products can have gone up relative to the low cost products.