By
Samantha Oller
CHICAGO – The indications are good that the economy is on
the mend, although c-store retailers still have plenty of disruptors that can
stymy future growth. That was the message of Dr. David Nelson, founder of
Finance & Resource Management Consultants Inc. and professor of economics
at Western Washington University, during his annual presentation on the
economic outlook at the NACS State of the Industry Summit.
Nelson pointed to falling unemployment rates, growth in household income,
higher housing starts and vehicle sales as well as a projected ramp-up in the
growth rate of gross domestic product as all positive signs. "There is a
lot of green lights for refreshing change," he said.
At the same time, economic growth is being concentrated among the wealthiest
Americans, and growth in worker productivity is not being followed by increases
in hourly compensation. As Nelson noted, the top 1% of earners have captured
two-thirds of economic gains since the recession. This is not a good dynamic
for the economy or c-store industry, which relies on a strong middle class.
Also expect increases ahead — Nelson cited increasing commodity costs for food
and a likely increase in interest rates. "Rates are going to be going up —
it's just a matter of timing," Nelson said, citing statements from Federal
Reserve chairperson Janet Yellen. The federal funds rate was projected to
grow from 0.25% in 2014 to 2.25% in 2016 — which would still be a very low
interest rate in a strong economy. Nelson advised retailers to lock in lending
rates now, before increases hit.
He also warned retailers to heed three larger trends that will impact business
for years to come:
Demographic shifts. With a rate of
growth slowing to a pace not seen since the 1930s, the population is becoming
older, as baby boomers move into the 65 and older bracket. This group also
drives less than the rest of the population — or about one-half that of
20-to-54-year-olds on an average miles driven basis. Older workers are leaving
the labor force, leaving fewer workers to care for the young and old.
Meanwhile, the population is also growing increasingly diverse — by 2018,
minorities will represent the majority of those 18 and younger. "How are
you designing your offer to reflect their wishes and demands?" asked
Nelson.
Technology shapes shopping habits.
While online sales currently make up only 5.6% of retail sales, they are
growing at twice the rate of sales at brick-and-mortar stores. Also consider that
retailers in 2013 saw only one-half of the holiday shopping traffic they did in
2010. Less shopping in stores means less driving, Nelson noted, adding that
technology has also reduced Millennials' desire or need to drive.
Meanwhile, as competition from alternative fuels intensifies, new forms of
transportation are developing, whether it is Google's driverless cars or,
potentially in the future, Amazon's delivery drones. "Figure out a way for
technology to help you succeed," Nelson advised.
Regulation expands. The increasing
fuel efficiency of the vehicle fleet took a nearly 17% bite out of fuel demand
between 2010 and 2013, Nelson said, representing 100 gallons per driver per
year. Expect demand to continue its long-term decline as fuel-efficiency standards
are set to double by 2025.
Meanwhile, smoking rates have fallen from 42% of the population in 1965 to 18%
today, with the federal government targeting a 12% rate by 2020.
And the Obama administration's push to increase the minimum wage to $10.10 per
hour, coupled with state-level efforts, could benefit workers who are currently
employed but make it harder for the long-term unemployed to find work, Nelson
warned. The president's plan to sign an executive order to increase the number
of salaried workers eligible for overtime pay could also impact c-store if the
current eligibility guideline is raised.
"What's your business plan to deal with these?" Nelson asked.
"Take change by the hand before it takes you by the throat."
The NACS State of the Industry Summit ends today.