Retail Performance in a Changing Economy

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Retail Performance in a

Changing Economy

How the sales and profitability of retailers are

affected by the macro economy and how their

retail strategy influences this relation

Lisa Dekker, s1962515

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1 UNIVERSITY OF GRONINGEN

Retail Performance in a

Changing Economy

How the sales and profitability of retailers are

affected by the macro economy and how their

retail strategy influences this relation

Lisa Dekker S1962515 +316 23 65 09 30

Nieuwe Ebbingestraat 81a, 9712NG Groningen l.dekker.3@student.rug.nl

22/06/2015 Master Thesis Department of Marketing Faculty of Economics and Business

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Management Summary

Over the past decade the U.S. retail industry has been going through both challenging times and changes. The Financial Crisis of 2007-2009, the largest financial crisis since the Great

Depression in 1929 (National Bureau of Economic Research, 2010) has seriously affected the retail industry (Evans & Mathur, 2013). As a result of this crisis, the Consumer Confidence Index and the Gross Domestic Product were affected considerably (Federal Reserve Bank of St. Louis, 2015). During the same decade, also the Internet has strongly developed and has become an essential part of modern retailing (Rose et al., 2011). The retail channel that a retailer choses to adopt might have influenced the effect of the economy on the performance. Also, consumer preferences shift during crises, and this might indicate that certain product types and sectors are less or more affected by changes in the macro economy.

This thesis answers on how the macro economy affects the sales and profitability of retailers, and how the firm’s retail strategy and the retail sector strategy influence this relation. To analyze this, a multiple regression analysis was performed with a sample of 162 publicly-traded U.S. retailers. It was found that the macro economy, expressed in the Consumer Confidence Index and the Gross Domestic Product, has a positive relation with the retailer’s sales. Moreover, the

Consumer Confidence Index has a positive relation with the retailer’s profitability. In contrast, the Gross Domestic Product has a negative relation with the profitability of retailers.

Concerning the firm’s retail strategy, it can be said that the sales of online retailers are less affected by changes in the confidence of consumers than multichannel retailers. Furthermore, the sales as well as the profitability of multichannel retailers are less affected by changes in the Gross Domestic Product than online retailers. Moreover, discount retailers weaken the effect of the Gross Domestic Product on the sales of retailers and are thus less affected during crises than premium retailers.

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Preface

This master thesis was written as part of the master program Marketing Management. I am happy to have been part of the Retail thesis group of prof. dr. L.M. Sloot as it gave me the opportunity to research a topic I am highly interested in. Moreover, putting into practice what I have learned during my Marketing master is both interesting and challenging.

Choosing a topic for my thesis was not a problem as I knew I wanted to research how retailers react to different economic circumstances and what retail strategies can be applied to influence the effects the economic circumstances have on the performance of retailers. However, writing this thesis did not always run smooth. Especially finding the data was a difficult and time-consuming task, but also the most rewarding one.

The process of writing this thesis has taught me not only on how the performance of retailers reacts to changes in the macro economy and how the retail strategy influences this relation, but also to look at situations and relations from both an academic and practical perspective. I would like to thank prof. dr. L.M. Sloot for guiding me throughout the process and for establishing a great work atmosphere. Prof. dr. L.M. Sloot taught me on the importance of the implications of the outcomes, and has encouraged me to continuously improve my work.

Furthermore, I would like to thank dr. J.E.M. van Nierop for his advice on the analyses, and prof. dr. P.S.H. Leeflang and ass. prof. A. Hunneman for their contributions in the Qualitative

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1. Introduction

Over the past decade the U.S. retail industry has been going through both challenging economic times and changes in the retail environment. The Financial Crisis of 2007-2009, the largest financial crisis since the Great Depression in 1929 (National Bureau of Economic Research, 2010), has seriously affected the size of the retail industry. Also, the Internet has strongly developed and has become an essential part of modern retailing (Rose et al., 2011). But how do retailers cope with these challenges performance-wise?

Growing businesses, new product launches and booming sales is how the U.S. retail industry can be described prior to the Financial Crisis. Before the Financial Crisis that started in late 2007, which was triggered by the default of mortgages in the USA (Sandoval & De Paula Franca, 2012), there was a period of stability and growth in the U.S. market (Evans & Mathur, 2013). However, the U.S. retail industry that accounts for a large part of the U.S. total economy was significantly affected by the Financial Crisis (Evans & Mathur, 2013). In this recession, the macro economy changed considerably as the Gross Domestic Product of the U.S. decreased, the unemployment rate increased, and households’ consumption decreased because of the declining income levels (Mian & Sufi, 2010). Also the confidence of consumers in the overall economy decreased significantly during this recession (Federal Reserve Bank of St. Louis, 2015).

Consequently, the consumption growth decreased and also retailers saw their sales declining to lower and sometimes even negative figures (Mian & Sufi, 2010). Though it is widely known that the Financial Crisis had a considerable impact on businesses, there is less known about how such changing economic circumstances affect the sales and profitability of the retailers. Although research has been conducted on the profitability of the retailing industry before and in the beginning of the Financial Crisis (Evans & Mathur, 2013), the direct relation between macro-economic variables and retailer’s sales and profitability has not been research extensively. Having knowledge on how the performance is affected by changes in the economy is valuable for future management and marketing decisions of retailers.

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business models to also use the Internet as a channel in the search for more profitability (Blazquez, 2014). This has resulted in the emerge of pure online retailers such as Stamps.com, EBay, Amazon, and Blue Nile, and the fact that e-commerce retail has become a significant part of the United States total sales (Prince, 2007). Also traditionally pure store retailers increasingly launched online channels, including retailers selling experience goods, such as J.C. Penney and Cabela’s that relied heavily on brick-and-mortar channels before (Endo et al., 2012). Moreover, online retailing has become one of the standard components in a company’s multi-channel structure (Rose et al., 2011). Multichannel retailers as compared to online and store retailers deploy multiple channels to enhance customer value (Neslin et al., 2006), but the question is whether it will have an actual influence on the retailer’s profitability. Moreover, did the use of online or multiple channels have an influence on the relation between the macro economy and the retailer’s performance? Research is needed to draw a conclusion about the effectiveness of the channel strategy in relation to the macro economy and the retailer’s performance.

Moreover, during times of recession, which is characterized by a declining Gross Domestic Product and Consumer Confidence Index, discounts can become attractive for the customer. Namely, consumers are looking for cheaper products and will spend less during crises (Shama, 1981; Nunes et al., 2011). As a consequence, discounts could be a potential solution (Huu Le, 2009) and there could be argued that discount retailers are less affected by declining economic circumstances. Thus, the retail product type that a retail firm offers might have an effect on the performance of the retailers, and this information can be valuable for future decision making concerning the retail strategies in economic contractions.

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All in all, knowing the effects a macro economy can have on a retailer’s performance, and on how the retail strategy can affect this relation, can be of value for a retailer’s future decision-making.

Therefore, the main question that will be researched is:

How does the macro economy affect the sales and profitability of retailers, and how do the firm’s retail strategy and the retail sector strategy influence this relation?

Within this research, it will be answered whether and how changing macro-economic variables have an effect on the sales and profitability of the retail industry in the USA. Next to this, it will be tested whether the retail channel strategy has an influence on the effect of the economy on the retailer’s profitability. Also, it will be researched whether the type of retail product has an

influence on whether the performance of the retailer was affected by the changing economic conditions. Lastly, it will be analyzed how retail sectors could moderate the relation between the macro economy and the retailer’s performance.

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2. Literature Review

In this Literature Review, there will first be elaborated on the Financial Crisis and the

implications it had for the economy. After this the possible relation between the macro economy and the performance of retailers will be explained, and how the firm’s individual retail strategy and how the retailer’s sector strategy could have influenced this relationship. To be specific, the effect of the use of different channels such as store retailing, online retailing and multichannel retailing on the relation between the macro economy and the retailers’ performance will be addressed with the help of existing literature. Also, literature about discount and premium price product types and how this firm’s retail product type can affect the relation between the macro economy and the retailer’s performance is given. Lastly, theories retail sectors can influence the relation between the macro economy and the retailers’ performance are presented.

2.1THE FINANCIAL CRISIS

Before the Financial Crisis that started in late 2007, there was a period of stability and growth in the U.S. market (Evans & Mathur, 2013). While between 1996 and 2006 the U.S. economy grew by 5 per cent every year, the retail industry grew at an annual rate of 12 per cent (Favaro et al., 2009) and the retail market was showing many opportunities. When the Financial Crisis started in December 2007 it would last until June 2009, which makes it the longest recession since the Great Depression that started in 1929 (National Bureau of Economic Research, 2010). A recession can normally be defined as ‘a significant decline in economic activity in the economy that lasts for more than a few months, normally visible in real Gross Domestic Product, real income, employment, industrial production, and wholesale retail’ (National Bureau of Economic Research, 2010). The crisis that took a height in 2008 is said to be originated in the United States (Szyskza, 2011). Several papers (Dimitras et al., 2015; Szyskza, 2011) argue that the crisis can be associated with a number of macroeconomic issues and imbalances, and that large changes in the economic environment followed from the Financial Crisis. Also the confidence of consumers in the overall economy, represented by the Consumer Confidence Index, decreased significantly during this recession (Federal Reserve Bank of St. Louis, 2015). The decline in GDP is said to be the most important economic characteristic in a crisis (Dimitris et al., 2015). The Gross

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economy, and represents the total value of all goods and services produced over a specific period of time (Investopedia, 2015). Moreover, a reduction in production, lack of liquidity and an increase in the number of bankruptcies follow from an economy suffering a recession (Dimitras et al., 2015). This is supported by the fact that Mian and Sufi (2010) found that the Gross Domestic Product of the U.S. decreased significantly during this period. Moreover, the

unemployment rate increased, and households’ consumption decreased because of the declining income levels (Mian & Sufi, 2010). In the below graphs, the development of the Consumer Confidence Index and the Gross Domestic Product in the United States from 2004 to 2013 are displayed.

Graph 1. Consumer Confidence Index Graph 2. Gross Domestic Product

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The U.S. retail industry that accounted for more than $4.5 trillion annual revenue in 2013

(Statista.com) is a large part of the U.S. total economy (Evans & Mathur, 2013).Namely, nearly

one-third of the total Gross Domestic Product results from the retailing industry (Evans & Mathur, 2013). Because of this, the success or failure of retailers has a huge impact on the overall economic environment. It is therefore an important industry to consider when analyzing the Financial Crisis. For the retail industry, 2008 presented to be a turbulent year with dramatic gasoline price fluctuations, suffering real estate markets, increasing unemployment and the decline in the stock markets (Grewal et al., 2009). Consequently, the consumption growth decreased and also retailers saw their sales declining to lower and sometimes even negative figures (Mian & Sufi, 2010). In the below graph the total retail sales in the United States from 2004 to 2013 are presented. It can be seen that the retail sales were growing up until the start

Graph 3. Total retail sales

of the crisis, and the total retail sales decreased during 2008 and 2009. In fact, the total retail sales shows similar movements as the CCI and the GDP presented in graph 1 and 2. Is it due to these changes in the economic environment that the retail sales also decreased at the same point in time, or is it too easy to presume that there is a relation?

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in number of bankruptcies during the crisis in 2007 to 2009, and from 2010 on the number of bankruptcies are decreasing again. These businesses would not have become bankrupt when they would have been profitable enough to be solvent and liquid. The question that thus remains is whether the changes in economic variables due to the recession had an effect on the profitability of businesses that could cause them to default. Understanding this relation is of importance as the number of bankruptcies increased considerably.

Graph 4. Annual Business Bankruptcies

As mentioned earlier and as shown in the graphs, the crisis came with changes in the

macroeconomic variables, changes in the retail sales, and bankruptcy of multiple businesses. It makes it therefore interesting to see to what extent these macroeconomic variables have changed the performance of the retail industry. Did these variables cause to change any difference in the retail sales and profitability? To survive in today’s competitive retail climate, there is a necessity to understand how changing economies can affect the performance of retailers and their potential to survival. The Financial Crisis in 2007-2009 presents an opportunity to investigate how the changing macro-economic variables could potentially have affected the performance of retailers.

2.2RETAILERS’SALES AND PROFITABILITY

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presented by the EBITDA; the earnings before interest, taxes, depreciation, and amortization. It is probable that increasing sales is related to increasing profitability. Namely, when the sales revenue increases, the earnings go up and this positively affects the EBTIDA. However, the retailer’s profitability does not only constitute of the earning element of sales. Instead, it also includes the operating expenses of the retailer, such as the production costs, research and development costs, marketing expenses, and administrative expenses. It is the money that the retailer has to spend in order to turn input, such as inventory, into a good that can be sold in a specific place. In order for the profitability to increase, the sales should increase more than the costs. It could thus be the case that while the retailer’s sales increases; the retailer’s profitability is in fact declining. Also, the profitability can increase while sales are actually decreasing. Therefore, it is of importance to research both the effect of a changing macro economy on the retailer’s sales as well as its effect on the retailer’s profitability, and conclude on possible differences between the two.

2.3THE MACRO ECONOMY AND RETAILERS’SALES AND PROFITABILITY

The question that remains is whether the macro economy really affects the sales and profitability of retailers. Does a changing economic environment have an effect on the performance of the retailer?

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become more pessimistic and selective, and will have a decreasing willingness to buy. As a result, consumer spending will decrease, which affects the earnings of retailers.

Moreover, research has shown that in times of recession, consumers adapt different shopping patterns as compared to periods of no recession (Hampson & McGoldrick, 2013).

First of all, due to a recession that takes place a shift in the consumer spending culture. When a consumer’s disposable income declines, and when job security and personal wealth is uncertain, price is more likely to become an important factor in the consumer’s decision-making (Hampson & McGoldrick, 2013). Even when consumers’ personal incomes are not affected by the crisis, they potentially also become more aware of prices. This is because consumers can feel guilty towards others and when making their buying decisions they will thus also account for the views of others (Ang, 2001). Therefore, signs of lower income levels do not only directly affect the individual’s consumer spending, but creates a national culture of being more price-conscious, which can result in lower sales figures for the retailers.

Next to a shift in the consumer spending culture, also the consumer’s potential for impulse buying is decreasing (Hampson & McGoldrick, 2013). In crises, it was found that 96.2% of the consumers do less impulse purchases, and think more carefully about what to buy by making use of purchase planning tools such as lists (McDaniel et al., 1986). Impulse buying is important for retailers to consider, as it has been reported that 29% of the department store purchase are on the basis of impulse (Jones et al., 2003). Next to this, impulse buying can be link with money

availability, as Beatty and Ferrell (1998) found that there is a positive relation between impulse purchases and money availability. This means that when consumers have more income to spend, the likelihood of impulse buying increases, which positively affects the retailers’ performances. Thus when unemployment increases, and disposable income levels decrease, the money

availability of consumers will decline, which will negatively affect impulse buying and retailers’ performance.

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(Shipchandler, 1982). By lowering the frequency of shopping, the likelihood of lower consumer spending at retailers increases as well as leaving less time to engage in impulse buying. Thus, a lower shopping frequency due to the recession will negatively influence the retailers’

performance.

Next to changes in shopping behavior and spending, it is also the retailer that adapts as a

consequence of the changing economy. In recession economies, retailers react to the changes by cutting costs, reducing their production, and decreasing investments (Huu Le, 2009). Retailers could choose to also cut costs on advertising expenses, and thereby invest less in loyalty programs. Since loyalty programs are positively associated with customer value duration

(Meyer-Waarden, 2007), and customer value duration is positively related to profitability (Gupta et al., 2004), decreasing the advertising expenses could have a negative effect. Moreover, Pearce and Michael (1997) argue that maintaining marketing activities in the core business of the retailer will make the retailer more recession-resistant. Also, Frankenberger and Graham (2003) found that advertising expenses offer more operational income and shareholder value during economic downturns. Krasnikov and Jayachandran (2008) also address the relative importance of marketing expenditures. They argue that marketing capabilities, together with research and development capabilities, have stronger association with performance measures, such as market share and profitability, as compared to operations expenditures. Their results thus highlight the importance of investments in marketing assets for the firm, and reducing investments in marketing during times of economic downturn could thus affect the profitability of a retailer. Next to cutting on advertising expenditures, retailers could possibly try to reduce their research and development costs. However, this will result in less quality improvements and innovations, while this is actually needed in times of recession to perform better (Savrul & Kili, 2011). Moreover, Krasnikov and Jayachandran (2008) also found that these research and development costs have a relation with the profitability of a firm, and reducing these investments could destroy potential future firm value.

All in all, due to recession’s changes in macro-economic shopping behavior and spending, and the retailer’s cost strategy are affected, which can result earnings and profits of retailers

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2.4RETAIL FIRM STRATEGY

Different business cycles such as expansion and contractions are assumed to have impacted the retailer’s sales and profitability, and it is most likely that the firm’s individual retail strategy has an influence in to what extent the macro-economic variables could have impacted the retailers’ sales and profitability. First of all, the retail channel strategy could have played a significant role. This is because next to the Financial Crisis being of influence in the retail industry, also the Internet has transformed the retail sector (Blazquez, 2014) during the same time period. In the below graph it can be seen that e-commerce have grown significantly during the period of 2004-2013. Namely, from 2004 to 2013 e-commerce sales have almost tripled. This fact-paced

Graph 5. E-commerce sales

expansion is likely to have been an influencing factor in how the retailer’s sales and profitability have responded to times of economic expansions and contractions, and thus will be elaborated on in section 2.4.1.

Secondly, Bogomolova et al. (2015) found that throughout the Financial Crisis the pattern in promotional activity had changed of companies. Their research shows that the proportion of goods sold on promotion increased significantly from 25% to 38% during the recession. An argument for this is that funds were reallocated from advertising expenditures to price

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of retailers are likely to have performed differently in relation with the macro economy. With this retail product type difference in firm strategy will be dealt with in section 2.4.2.

2.4.1 Retail Channel Strategy

Online retail has become one of the main channels for retail companies, and a considerable amount of retailers are using both the brick-and-mortar store as well as the online store to sell their products. These are called the so-called multichannel retailers. Multichannel and online retailing have become more important in the current retail environment, resulting in many

retailers having changed their business models over the years to also use the Internet as a channel in the search for more profitability (Zhang et al., 2010; Blazquez, 2014).

Adding an online channel to a retailer’s business is likely to have a positive influence on the performance as e-commerce companies experienced a 31% annual increase in revenues over the period of 2000-2011 (OECD, 2012). Moreover, by the increasing technological developments and globalizations, consumers are spending more time and resources on the Web, which leads to more online consumption and shopping (Martínez-López et al., 2014). From this can follow that online retailers and multichannel retailers are more likely to outperform the store retailers over time.

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shown that the more frequent consumer visit the online retailer’s website, the higher the likelihood of the customer buying a product (Moe & Fader, 2004). All in all, multichannel and online retailers have different capacities than store retailers, which can lead to them

outperforming the store retailers.

Next to the online retailers and multichannel retailers are argued to have a more positive effect on the retailers’ profitability than store retailers, multichannel retailers are expected to

outperform the online retailers based on previous theories. Namely, it is reported that consumers who shop in multiple channels are more profitable for the retailers as compared to consumers shopping in only a single channel. Kumar and Venkatesan (2005) found that those consumers shopping in multiple channels are more likely to score high on performance metrics such as revenue and the possibility of the customer’s staying active. The research argues that

multichannel shoppers have a more deep relationship with the retailers, and experiences greater trust and lower risk in the transactions with the retailers. This seems to stimulate the shoppers to spend more and to use even more of the channels that the retailer is offering in the future as well, resulting in more revenues (Kumar & Venkatesan, 2005). Additionally, the research reports that multichannel shoppers are more loyal and more profitable, as these consumers are highly aware of the different purchase options. These findings are supported by results from a research on the apparel retail sector in which consumers who purchase across multiple distribution channels provide a higher future profit potential (Kumar et al., 2006). Namely, an increase of consumer spending in alternative channels such as the Web and catalog results in an even higher increase in the customer lifetime value for the retailer (Kumar et al., 2006). As consumers are

increasingly using these different channels (Rangaswamy & Van Bruggen, 2005), it will ultimately affect the customers life time value and, thus, the retailer’s profitability in the long run.

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Additionally, ICT-related sectors have shown to be more resistant to the economic crisis than other sectors of the economy (OECD, 2012). It can therefore be argued that the use of an online channel can influence the relation between the macro-economic variables and the retailers’ profitability.

Moreover, Savrul & Kili (2011) present multiple arguments on why retailers involved in e-commerce are less affected by a weaker economy than pure store retailers. Namely, enterprises that turned to e-commerce practices during the crisis period have a competitive advantage over those that did not. It has been found that e-commerce leads to decreasing production costs, and due to the higher process efficiency, the retailers had the possibility to invest in quality

improvements and creation of new products (OECD, 1999). As a result of these quality improvements and innovations, the retailer had an opportunity to growth, which is needed in times of recession (Savrul & Kili, 2011). Moreover, retailers involved in e-commerce are likely to outperform the others in times of recession as a result of more efficient customer services, better information and communication management, and the accelerating manner of doing business (Savrul & Kili, 2011). Furthermore, multichannel and online retailers have more opportunities to reach new markets because e-commerce allows the retailers and the consumers to reach the most remote markets in an easy manner. This will result in providing more trade volume and profit on both the demand and supply side (Savrul & Kili, 2011). As a consequence of the increased trade volume in those countries, the effects of the crisis are eased. Thus, it can be argued that retailers with an online channel will ease the effect of the macro-economic conditions, and multichannel retailers and online retailers will have a stronger negatively

moderating effect on the relation between the macro economy and the retailer’s profitability than pure store retailers.

Lastly, it has also been found by Kumar and Venkatesan (2005) that multichannel shopping, compared to a single channel such as the store or the Internet, is associated with a high purchase frequency. As stated earlier, the consumer shopping pattern will adapt to times of recession by lowering the frequency of shopping (Hampson & McGoldrick, 2013), which will affect the amount of money that consumers spend at the retailers. However, when a multichannel retail strategy is applied, the effect of lower shopping frequency in recessions can be mitigated.

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2.4.2 Retail Product Type

Retailers have the opportunity to use different pricing strategies, and must develop these strategies carefully to ensure that they convey the desired image and to optimize their profits (Grewal et al., 2010). Overall, the firm’s individual pricing strategies can be categorized in two product types. First of all, the discount retailers that discount their prices to sell their goods to as many consumers as possible for the price each consumer is willing to pay (Kohli & Suri, 2011). For example, Wal-Mart is a discount retailer than pursues a certain image by promising the lowest prices on an everyday basis (Grewal et al. 2010). Of all promotional tools, discounting is the most common form of sales promotion (Darke & Chung, 2005).

Secondly, retailers can employ a premium product type strategy which is a promotional strategy increasingly used (Palazon & Delgado-Ballester, 2009). In contrast to the discount retailers, these premium retailers emphasize, for example, their superior service or differentiating product, without overemphasizing the promotional aspect of the price (Grewal et al., 2010). In short, they use a prestigious image as competitive advantage. Premium retailers use promotions that exclude those that are specific to the monetary value of the good (Palazon & Delgado-Ballester, 2009). These non-monetary promotions help to differentiate and communicate distinct brand attributes (Chu & Keh, 2006).

Shama (1981) argues that in times of recession consumers exercise more comparative shopping and are looking for cheaper products. Also, consumers spend less and look for lower prices when the economy is challenging (Nunes et al., 2011). As a consequence, offering cheaper products or quantity discounts could be a potential solution (Huu Le, 2009). Similarly, Schafter and Roper (1985) state that in a declining economy firms could potentially offer cheaper and more

functional products. Dhar and Wertenbroch (2000) found that consumers tend to focus more on what is actually needed and functional in times of recessions, which will lead to the acquisition of product that fulfill an everyday need. In fact, the products that are functional and needed are a great part of a consumer’s share-of-wallet. In the research of Gordon et al. (2013), they found that when the macro economy is weak, which they measured with the help of the Gross

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substantial share in the consumer budgets for which the consumers became more price sensitive (Gordon et al., 2013). Namely, the relation between GDP, elasticity, and price sensitivity was the strongest for high share-of-wallet goods. As said, it are the high share-of-wallet goods that become more sought after in recession because of their functional and need fulfilling character, and consumers are becoming very sensitive for their price in a weak macro economy. A discount product that plays with this price sensitivity could be more effective in this situation than a premium strategy.

Furthermore, as mentioned earlier, consumers focus more on products that are needed and functional during weak economies. Chandon et al. (2000) found that it are the monetary promotions that discount retailers use, such as sales promotion, are more associated with

functional products as compared to premium retailers that have non-monetary promotions. This could lead to discount products enjoying relatively stable sales in times of recession.

Moreover, it are the discount retailers that use mainly monetary sales promotion. It is found that sales promotion can be particularly costly (Palazon & Delgado-Ballester, 2009). However, Roberts (2003) argues that those retailers that increased marketing expenses were not less profitable during recession. Similarly, Pearce and Michael (1997) argue that maintaining marketing activities in the core business of the retailer will make the retailer more recession-resistant. Thus, discount retailers that invest in relatively high-cost sales promotion have the potential to become more recession-resistant and profitable than premium retailers.

Lastly, it can also be the change in consumer consumption culture and behavior that could cause a preference for discount retailers during recessions. Premium products are more associated with image, and during recessions consumers can start to feel guilty towards others and when making their buying decisions they will thus also account for the views of others (Ang, 2001). This will mean that there is less focused on the image of a product. Instead the consumer culture shifts to a more price-conscious one which is associated with discount products. Also, discount products have the effect on customers to spend extra money on buying additional products as discounts create a psychological income effect (Heilman et al., 2002) that leads to preference for discount products.

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2.5RETAIL SECTOR STRATEGY

The relationship between the economy and the performance of retailers is likely to have been affected by the retail sector strategy. In the below graphs, the retail sales for different sectors are displayed. In graph 6 the food and beverage store sales and in graph 7 the health and personal care store sales are presented. Both these sectors provide products that are used for the

consumer’s everyday needs, and are functional and easily-justified. It can be seen that in the food and beverage stores there was a minor decrease in sales from 2008 to 2010, and for the

Graph 6. Food and beverage store sales Graph 7. Health and personal care store sales

Graph 8. Clothing and clothing access. store sales Graph 9. Furniture and home furnishings store sales

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Especially, the furniture sector had a serious decrease in sales. Because of these differences between the sectors, it is likely that retail sector type has played a role in the relation between the macroeconomic variables and the retailer’s sales and profitability.

2.5.1. Retail Sector Type

Sector types can be broadly categorized in either utilitarian or hedonic. Utilitarian products are defined as more functional and are a tool for consumers to reach a particular goal (Dhar &

Wertenbroch, 2000). For consumers to have bought the utilitarian product, the choice is reviewed as beneficial and easily justified (Sela et al., 2009). For example, utilitarian sectors can be

focused on household products, kitchen equipment, food, home security systems and personal computers (Steinhart et al., 2013). In contrast, hedonic goods are said to be more focused on a sensory and aesthetic experience, and provide a fantasy or fun experience for the consumer (Dhar & Wertenbroch, 2000). The choice to buy a hedonic good is related to the emotional feelings and the perceived image of the product. For example, hedonic sector products include flowers, clothing and accessories, music, chocolate, and luxury cars and watches (Steinhart et al., 2013). The classification of products in utilitarian or hedonic goods is based on more absolute terms than relative ones (Steinhart et al., 2013). Namely, a product can have both utilitarian and hedonic features, and the difference is based on a matter of perception. To classify these products into either the utilitarian or hedonic sector, it can be based on whether consumer perceive it as primarily utilitarian or hedonic (Pham, 1998).

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conspicuous consumption during recessions. From this can be concluded, that hedonic goods, which are more related with conspicuous consumption than utilitarian goods, are sold less in times of economic downturn. Moreover, for motor vehicles and furniture, which are primarily associated with hedonic goods (Steinhart et al., 2013), research has also shown that the consumption in motor vehicles and furniture was the first to decline in late 2007 as well as showing the sharpest decline throughout the period of recession from 2007 to 2009 (Mian & Sufi, 2010). Also the theory of Ang et al. (2000) supports this as this paper states that during recessions consumers adapt their behavior because of the changing economic circumstances. It is argued that the acquisition of luxury products is postponed, and that price becomes a more critical consideration. Also, products that are sold during the recession are based on the fact that these purchases offer a specific benefit that the customer sought (Ang et al., 2000). As the price-criterion and functionality-price-criterion are more related to utilitarian products, this may benefit utilitarian sector retailers in times of recession. On the contrary, retailers that implement strategies involving the promotion of buying more products and conspicuous consumption, which is related to hedonic needs, become less attractive in times of recessions. Furthermore, retailers that focuses on impulse buying and thereby satisfying the hedonic needs instead of necessities also become less attractive for crisis-hit consumers (Ang et al., 2000). Thus, economic conditions seem to have a larger impact on consumer behavior for hedonic sector retailers as compared to utilitarian sector retailers.

Next to a change in consumer behavior, utilitarian sector retailers are more likely to take on an online channel, and as argued earlier, being an online or multichannel retailer potentially

moderates the relation between the macro economy and the retailers’ profitability. It can be said that most focused on retailers going online has been on the utilitarian sectors (Childersa et al., 2001). For instance, multichannel retailing has been an important element for major grocery retailers, which are utilitarian sector companies, because shoppers surf the Internet to buy packaged goods (Warschun, 2012). On the contrary, the fashion industry has been one of the slowest to adopt an online channel, as these retailers believed in the traditional view of

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create an online experience in which it addresses the sensory and emotional feelings associated with the goods. Next to this, shopping hedonic goods are more associated with brick-and-mortar stores due to the socially visible nature (Roy et al., 2005). As a consequence, there has been more focus on the utilitarian perspective of having an online channel (Blazquez, 2014). Also, it has been reported that utilitarian values play a stronger part in the formation of a preference for an online retailer (Overby & Lee, 2006). Research of Jarvenpaa and Todd (1997) has shown that the most important benefit according to consumers of using the online retail channel was

convenience. Additionally, Vijayasarathy and Jones (2000) found that price was also particularly important when it came to online shopping. Because of the fact that convenience and price play a large role in turning to an online retailer, utilitarian sector retailers are more likely to add or become an online channel to profit from these factors. Overall, it can be concluded that retailers in the utilitarian sector have a higher probability in turning into an online store or adding an online channel, and thereby becoming a multichannel or online retailer. As mentioned, online and multichannel retailers are more able to reach new markets (Savrul & Kili, 2011). Moreover, they can lower their production costs, and due to the higher process efficiency, the retailers had the possibility to invest in quality improvements and creation of new products. Thus, for utilitarian sector retailers adding an online channel the effect of a weaker economy on the retailers’ performance can be moderated.

All in all, utilitarian sector retailers are thought to be less affected by changes in the economic environment compared to hedonic sector retailers.

2.5.2. Retail Sector Purchase Frequency

Another sector distinction that be made is in terms of how often certain products are purchased. First of all, there are durable goods, which can be defined as products that consumers can continue to use over time and serves the customer for multiple periods (Ho et al., 2014). As a result, when one buys a durable good in the present time, it serves as a substitution for a future purchase (Mantena et al., 2012). Therefore, durables good are not purchased as often as non-durable goods, and are also more expensive than non-non-durable goods. Examples of non-durable goods are cars, furniture, and jewelry. Non-durable goods are characterized by being consumed

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Business cycles have different effects on durables and non-durables (Hubbard et al., 2013). As previously stated, during weak economy periods consumers become more conscious on what they will purchase. Durable goods can be enjoyed for a longer period of time, and the purchase of new durable items can easily be postponed to a period when the consumer has more to spend (Hubbard et al., 2013). On the contrary, non-durables goods that are consumed immediately almost always require to be purchased again. As such, consumption of non-durables is less likely to be affected during crises compared to durables goods. Alvarez-Parra et al. (2013) add that the consumption of non-durable goods is less volatile and that the consumption of durable goods is more volatile. This means that the sales of durable goods retailers will be more easily affected by changes in the economy than the sales of non-durable goods retailers.

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3. Qualitative Research

Considering the fact that the variables presented in the Literature Review have not been analyzed in relation with each other before and because extensive literature in this field is lacking, performing a qualitative research can provide us with additional insights on the possible relations. Conducting qualitative research has the advantage of providing insights and perceptions of stakeholders that would normally not hav e been uncovered (Malhotra, 2010). Next to finding additional insights that were not present in literature , performing this qualitative research can also provide validation for performing the research. Namely, it can provide insights on why specific relations would exist and gives therefore an idea on whether the research could be of value. Greene et al. (1989) argue that using a qualitative research next to a literature review can serve as a complementary research to clarify results found earlier and to investigate whether the perceptions of experts are consistent with existing literature.

For this qualitative research two participants were interviewed who both have an academic background related to the research question. The first participant in this qualitative research is prof. dr. P.S.H. (Peter) Leeflang, who works at the University of Groningen, Faculty of Economics and Business, the Department of Marketing. Due to his extensive background in management, marketing, digital marketing, and model-building, he can provide academic expert insights. The second participant is Associate Professor Auke Hunneman, who works at the Marketing Department of BI Norwegian Business School. He has a background in marketing as well as economics, which are both of value in this study.

3.1METHOD OF CONDUCTING ACADEMIC EXPERT INTERVIEWS

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research is needed. Secondly, the questions had an explanatory character to determine the possible relations between different topics addressed in the Literature Review. Due to using a semi-structured interview there is consistency between the two interviews, but also leaves opportunity for more specific follow-up questions and elaborations (Malhotra, 2010). During the interview, notes were taken, and probing and laddering techniques were used to extract more information (Reynolds & Gutman, 1988). After the interviews, the data from the one-on-one in-depth interviews was analyzed and evaluated whether it fitted with the earlier found literature (Malhotra, 2010). The results from together the qualitative research and the existing literature will form the basis for the sub sequential quantitative research.

3.2ACADEMIC EXPERTS INTERVIEW RESULTS

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product in the store, but that online retailers are more likely to be profitable due to

efficiencies. Moreover, he argues that multichannel retailers will probably perform the best as this type has the benefits of both. Lastly, he mentions that in recession consumers will first turn to products that they really need, such as their food, and that luxury products are more likely to lose during crises.

Ass. Prof. Hunneman expressed that research on recession marketing focuses on performance outcomes (e.g., private label share vs. that of national brands), the

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4. Conceptual Model and Hypotheses

The theories elaborated on in the Literature Review and insights from the Qualitative Research are visualized in the following conceptual model. This model exhibits the relation between the macro economy as the independent variable and the retailer’s sales and retailer’s profitability as the dependent variables. Moreover, the moderating variables of the retail firm strategy and the retail sector strategy are displayed.

H3a-c, H5 H4a-c, H6 H1a-b

H2a-b

H7, H9 H8, H10

Figure 1. The Conceptual Model

Independent Variable Macroeconomic variables:

- Consumer Confidence Index - Gross Domestic Product -

Moderating Variable: Retail Firm Strategy

- Store vs. Internet vs. Multichannel - Discount vs. Premium Dependent Variable: Retailer’s Sales: - Total Revenues Control Variables - Firm size

- Firm’s international sales - US population

- US internet penetration

Moderating Variable: Retail Sector Strategy

- Utilitarian vs. Hedonic - Non-durables vs. Durables

Dependent Variable: Retailer’s Profitability:

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4.1DIRECT EFFECTS

There can be argued that macroeconomic variables have a relation with the retailer’s sales. During times of low consumer confidence, consumers become more selective and aware when it comes to picking a product, which will decrease their willingness to buy (Hunneman et al., 2015). On the contrary, when the confidence of consumers grows, they become more willing to buy. Secondly, the consumer spending culture shifts to a more price-conscious one during recessions (Hampson & McGoldrick, 2013) and consumers will take into account others when making buying decisions (Ang, 2001), resulting in lower sales. Thirdly, when unemployment increases and income decreases the consumer’s potential for impulse buying decreases

(Hampson & McGoldrick, 2013). Lastly, the frequency of shopping is lowered during recessions (Shipchandler, 1982; Hampson & McGoldrick, 2013). All in all, this results in the following hypotheses;

Hypothesis 1a: The Consumer Confidence Index has a positive relation with the retailer’s sales

Hypothesis 1b: The Gross Domestic Product has a positive relation with the retailer’s sales

In recession economies, retailers react to the changes by cutting costs, reducing their production, and decreasing investments (Huu Le, 2009). By reducing advertising expenses, less is invested in loyalty programs resulting in lower customer lifetime (Meyer-Waarden, 2007) which is related to profitability (Gupta et al., 2004). By reducing marketing expenses the retailer will become less profitable (Krasnikov & Jayachandran, 2008), recession-resistant (Pearce & Michael, 1997) and will result in lower operational income and shareholder value (Frankenberger & Graham, 2003). Also by reducing research and development costs, less in invested in innovations and

improvements that could result in long-term growth, while this is in fact needed in recessions (Savrul & Kili, 2011). It can thus be argued that when economies become weaker, the retailer’s profitability is affected. As a result, the following hypotheses can be presented;

Hypothesis 2a: The Consumer Confidence Index has a positive relation with the retailer’s profitability

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4.2MODERATING EFFECTS

4.2.1 Moderating effect – Retail Channel Strategy

Having an online channel can offer several benefits as found in the Literature Review and the Qualitative research. First of all, Kumar et al. (2006) state that providing an online channel can offer a greater variety of products online which will drive sales revenues. Furthermore, multi-channel and online shopping offers convenience as there is a 24/7 accessibility of the online store on the Internet (Kumar et al., 2006), increasing the likelihood of acquiring goods. Moreover, retailers with an online channel are likely to be less affected than pure store retailers in recession as these retailers have more opportunities to reach new markets, and this eases the effects of crisis (Savrul & Kili, 2011). It was also found that multichannel retailers were less affected in terms of sales than one-channel retailers in times of economic downturn. This is because multichannel shopping is associated with a high purchase frequency Kumar and Venkatesan (2005), which mitigates the effect of lowering shopping frequency in recessions (Hampson & McGoldrick, 2013). These theories lead to the following hypotheses;

Hypothesis 3a: Online retailers negatively moderate the relation between the macro economy and the retailer’s sales more than store retailers

Hypothesis 3b: Multichannel retailers negatively moderate the relation between the macro economy and the retailer’s sales more than store retailers Hypothesis 3c: Multichannel retailers negatively moderate the relation between the

macro economy and the retailer’s sales more than online retailers

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Additionally, Kumar and Venkatesan (2005) report that multichannel shoppers are more loyal and more profitable compared to pure online retailers or pure store retailers. Namely, an increase of consumer spending in alternative channels results in an even higher increase in the customer lifetime value for the retailer (Kumar et al., 2006), which is related to long-run company

profitability (Gupta et al., 2004) and needed during economic expansions and contractions. It can be said that the spending on multichannel retailers is less affected by the economy. As a result of these theories, the following hypotheses are formulated;

Hypothesis 4a: Online retailers negatively moderate the relation between the macro economy and the retailer’s profitability more than store retailers Hypothesis 4b: Multichannel retailers negatively moderate the relation between the

macro economy and the retailer’s profitability more than store retailers Hypothesis 4c: Multichannel retailers negatively moderate the relation between the

macro economy and the retailer’s profitability more than online retailers

4.2.2 Moderating Effect – Retail Product Type

In the Qualitative research it was mentioned that service-oriented products have a potential of increasing sales during crises. However, most literature says that consumers focus more on products that are needed and functional during weak economies. Functional products constitute for a substantial share-of-wallet and Gordon et al. (2013) state that these SOW products are most price sensitive in a weak macro economy, which leads to a discount preference. Additionally, Chandon et al. (2000) found that it are the monetary promotions that discount retailers use are more preferred in recession. Also, the consumer culture shifts to a more price-conscious one and consumer adapt their buying decisions to others (Ang, 2001) which results in the acquisition of discount products. Lastly, discount products provide a psychological income effect (Heilman et al., 2002) which can result in a preference. As a result, the spending on discount products remains relatively more stable than on premium products during both economic expansions and contractions. As a consequence, the following hypotheses can be formulated regarding the moderating effect of the retail product type on the relation between the macroeconomic variables and the retailer’s sales;

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Moreover, increased costly sales promotion of discount retailers in recessions are found to not to be less profitable (Roberts, 2003), and these marketing expenditures make a retailer even more recession-resistant (Pearce & Michael, 1997). This results in the following hypotheses of the moderating effect of the retail product on the relation between the macroeconomic variables and the retailer’s profitability;

Hypothesis 6: Discount product retailers negatively moderate the relation between the macro economy and the retailer’s profitability more than premium product retailers

4.2.3 Moderating Effect – Retail Sector Type

When the macro economy is becoming weaker, consumers will become more focused on what is actually needed and functional, which is more associated with utilitarian products (Dhar & Wertenbroch, 2000) and less focused on luxury products, which is related to hedonic products. In the Qualitative Research this argumentation is supported as well. Moreover, Ang (2001) argues that customers reduce conspicuous consumption during recessions, which will reduce the consumption of hedonic goods. Furthermore, retailers focusing on impulse buying and thereby satisfying the hedonic needs instead of necessities also become less attractive for crisis-hit consumers (Ang et al., 2000). Next to a change in consumer behavior, utilitarian sector retailers are more likely to take on an online channel (Childersa et al., 2001; Blazquez, 2014, Overby & Lee, 2006), and having an online channel negatively moderates the relation between the

Financial Crisis and the retailers’ sales more. From these theories, the following hypotheses can be proposed;

Hypothesis 7: Utilitarian sector retailers negatively moderate the relation between the macro economy and the retailer’s sales more than hedonic sector retailers

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this could positively affect the profitability of retailers during recessions. As a consequence, the following hypothesis can be proposed;

Hypothesis 8: Utilitarian sector retailers negatively moderate the relation between the macro economy and the retailer’s profitability more than hedonic sector retailers

4.2.4 Moderating Effect – Retail Sector Purchase Frequency

Durable goods can be enjoyed for a longer period of time, and the purchase of new durable items can easily be postponed to a period when the consumer has more to spend (Hubbard et al., 2013). On the contrary, non-durables goods that are purchased immediately almost always require to be purchased again. Also, Alvarez-Parra et al. (2013) add that the consumption of durable goods is more volatile. This means that the sales of durable goods retailers will be more easily affected by changes in the economy than the sales of non-durable goods retailers. Therefore, the following hypothesis can be proposed;

Hypothesis 9: Non-durables sector retailers negatively moderate the relation between the macro economy and the retailer’s sales more than durables sector retailers

Usually, more durable goods are associated with more research and development expenditures (Goering, 2005). When the economy is in a downturn, and less is invested in R&D, these

durable goods firms are affected. Deciding to invest less in R&D can reduce the profitability of a firm (Krasnikov & Jayanchandran, 2008). Non-durables goods that are less dependent on

extensive research and development will thus also feel less impact when they reduce their R&D expenditures when the economy is weak. As such, it can be argued that non-durables sector retailers are less affected by changes in the economy than durables sector retailers. As a consequence, the following hypothesis can be proposed;

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5. Research Methodology

To test the conceptual model and hypotheses, a research design is set up. In this chapter, first, the data sample and collection will be briefly addressed. Secondly, the dependent, independent, moderating, and control variables will be more elaborately explained and their measurements addressed. Thirdly, the method of analysis of the data will be presented.

5.1DATA SAMPLE AND COLLECTION

The data sample consists out of 162 publicly-traded U.S. retailers for which the primary source is the COMPUSTAT database. This database is primarily focused on United States based

companies, and as the Financial Crisis is said to be originated in the U.S (Szyskza, 2011).; analyzing the macroeconomic variables in relation with U.S. retailers and, thus, using the

COMPUSTAT database is appropriate. The COMPUSTAT database will be used to provide data on the retailer’s sales, profitability, and size. Moreover, with the help of SIC codes in the

database it can be determined to which retail sector the retailers belong. Furthermore, the retailers selected from the COMPUSTAT database will be rated by external U.S.-based professionals on whether these retailers are discount or premium retailers. Moreover, Dutch Marketing experts will rate the sector that the retailers belong to on how utilitarian or hedonic they are. Additionally, the annual reports and websites of the individual retailer are used to determine whether the retailer uses store channels, online channels or both. The data of the macroeconomic variables will be retrieved from the Federal Reserve Bank of St. Louis, Thomson Reuters, University of Michigan, and the World Bank.

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5.2VARIABLE MEASUREMENTS

In the following table, an overview can be seen of the variables used, how the data of the

variables were obtained, and how they are used in the research. Afterwards, all the variables will be explained per category.

Variable Data Source Coding Data input

Retailer’s Sales COMPUSTAT, 10-K 0<x<∞ Indexed(Total Revenues)

Retailer’s Profitability COMPUSTAT, 10-K -∞<x<∞ EBITDA Margin

= EBITDA / Total Revenues

Consumer Confidence Index

Thomson Reuters, University of Michigan

0%<x<∞ Per year average of 12 monthly

Michigan Consumer Sentiment Index

Gross Domestic Product

Federal Reserve Bank of St. Louis

0<x<∞ Per year average of 4 quarterly

Gross Domestic Product values

Multichannel Retailer 10-K, company websites

Dummy coding (1;0)

1 = Multichannel Retailer 0 = No Multichannel Retailer

Online Retailer 10-K, company

websites

Dummy coding (1;0)

1 = Online Retailer 0 = No Online Retailer

Store Retailer 10-K, company

websites Dummy coding (1;0) 1 = Store Retailer 0 = No Store Retailer Discount/Premium Retailer

US retail expert rating survey

Likert scale (1-7)

1 = Pure Discount Retailer 7 = Pure Premium Retailer

Utilitarian/Hedonic Retailer

Dutch marketing expert rating survey

Likert scale (1-7)

1 = Pure Utilitarian Retailer 7 = Pure Hedonic Retailer

Durables Retailer COMPUSTAT, 10-K Dummy

coding (1;0) 1 = Durables Retailer 0 = No Durables Retailer Semi-durables Retailer COMPUSTAT, 10-K Dummy coding (1;0) 1 = Semi-durables Retailer 0 = No Semi-durables Retailer

Non-durables Retailer COMPUSTAT, 10-K Dummy

coding (1;0)

1 = Non-durables Retailer 0 = No Non-durables Retailer

Firm Size COMPUSTAT, 10-K 0<x<∞ LN(Number of Employees)

Firm International Sales

10-K Dummy

coding (1;0)

1 = Sales presence outside the US 0 = Only sales presence in the US

US Population The World Bank 0<x<∞ Number of US inhabitants

US Internet Penetration

The World Bank 0%<x<100% Percentage of US population that

uses the Internet

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5.2.1 Dependent variables

The first dependent variable that represents the retailer’s sales variable will be ‘indexed retailer’s

total revenue. For every retailer the retail sales will be collected per year, and an average total

revenue will be calculated per retailer. The yearly total revenue figures will be compared to this mean to retrieve an indexed score. This is to eliminate the effect of different firm sizes.

The second dependent variable, that will represent the Retailer’s Profitability, will be the

‘EBITDA margin’. For every retailer the EBITDA will be collected per year and will be divided by the total revenues of that year. Because of this, EBITDA margin can be more easily compared between firms. Moreover, EBITDA is a financial performance measure focused on profitability that computes the earnings from the core business operations, but does not include gains or losses resulting from the capital structure, tax rates or depreciation policies. As a consequence, EBITDA is an appropriate profitability measure that can be used to make comparisons between different retailers when they do have different capital structures, or make use of different tax systems or deprecation policies. This is particularly helpful when comparing online retailers to store retailers.

5.2.2 Independent variables

The macro economy is represented by two variables to see how different macroeconomic variables have an effect on the performance of retailers. Moreover, it is valuable to include different types of measures, as the GDP is a more objective measure of the state of the economy, and the CCI is a more subjective measure of what the consumers think about the state of the economy.

The first independent variable of the macro economy will be the ‘Consumer Confidence Index’, which will be the average of twelve monthly Consumer Confidence Index rates for one year. As the retailers have their fiscal years ending in different months, the average of the CCI for one

year differs per retailer. For example, when a fiscal year ends on the 31st of March for a retailer,

the average CCI will be calculated from the 1st of April the previous year to the 31st of March.

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5.2.3 Moderating variables

5.2.3.1. Retail Channel Strategy

The first moderating variable is the retail channel strategy, which can be either ‘multichannel

retailer’, ‘online retailer’, or ‘store retailer’. Every year it will be analyzed on the basis of the

companies’ annual reports and websites whether the retailers were multichannel retailers, online retailers, or store retailers. To represent this retail channel strategy, dummy coding will be used. For ‘multichannel retailer’ this will mean a score of 1 (multichannel retailer) or 0 (no

multichannel retailer). For ‘online retailer’ this will mean a score of 1 (online retailer) or 0 (no online retailer). For ‘store retailer’ this will mean a score of 1 (store retailer) or 0 (no store retailer). Throughout the period of 2004-2013 the retailer can for example change from being a store retailer to being a multichannel retailer, and therefore, every year has to be individually dummy coded.

5.2.3.2. Retail Product Type

The second moderating variable is the retail product type. To be able to judge an U.S. retailer on how discount-oriented or premium-oriented it is, a survey is used and send out to approximately 150 U.S. retail experts. These 150 U.S. retail experts are mostly from academic backgrounds and some had a business background in retailing. Moreover, these experts are located throughout multiple regions in the US, as some retailers only operate in certain regions. They are asked to only rate the retailers they know so that the ratings will not contain random values. In Figure 2 in the Appendix five example questions from the U.S. expert ratings survey can be seen.

The U.S. retail experts are asked to rate the retail brands on a Likert scale from 1 to 7, with 1 meaning that the retailer is a pure discount retailer, and 7 meaning that the retailer is a pure premium retailer. As some retailers consist of multiple brands, the U.S. retail experts have to rate 179 brands. Out of the 162 retailers, 9 retailers have a rating that consists out of the average of multiple brands. The remaining 153 retailers are rated on the basis of only one brand.

In total, 18 U.S. retail experts filled in the online survey. Out of the 162 retailers, 144 retailers received a rating from the U.S. experts. The average amount of respondents per rated retailer was 9,718, and the maximum amount of respondents per rated retailer was 18. Out of the remaining 18 unrated retailers, 9 retailers were rated by me on the basis of annual reports, company

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were too difficult to judge on how discount-oriented or premium-oriented they are, and as such, they received the average rating of the previously 153 rated retailers. This average was

3,871366013. The rating that all the retailers received will remain constant throughout the entire period.

5.2.3.3. Retail Sector Type

The third moderating variable is the retail sector type. To be able to judge a retailer sector group on how utilitarian or hedonic they are, a Dutch survey is used and is send out to marketing

department at Dutch universities. In Figure 3 in the Appendix five example questions of the retail sector groups that have to be rated in the survey can be seen. The Dutch marketing experts are asked to rate the retail sector groups on a Likert scale from 1 to 7, with 1 meaning that the retailer is a pure utilitarian retail group, and 7 meaning that the retailer is a pure hedonic retail group. Altogether, they have to rate 33 different retail sector groups.

In total, 11 respondents per retail sector group were acquired through the survey. As 7 out of the 162 retailers were active in multiple retail sector groups, they received the average rating from the sector retail groups they are part of. The rating that all the retailers received will remain constant throughout the entire period.

5.2.3.4. Retail Sector Purchase Frequency

The last moderating variable is the retail sector purchase frequency, which can be either

‘durables retailer’, ‘semi-durables retailer’, or ‘non-durables retailer’. It will be analyzed on the basis of the companies’ annual reports and SIC codes to which sector the retailer belong, and on the basis of this it will receive one of these three labels. There has been decided to use three categories instead of only ‘Durables’ and ‘Non-durables’ because there are retailers that produce goods that are neither truly durable as truly perishable. Moreover, making using of more

categories can also give a clearer view of the effect of the retail sector purchase frequency as a moderating variable. In table 2 in the Appendix an overview to which group each sector belongs can be seen. To represent this retail sector purchase frequency, dummy coding will be used. For

‘durables’ this will mean a score of 1 (durables) or 0 (no durables). For ‘semi-durables’ this will

Retail Performance in a Changing Economy

Retail Performance in a

Changing Economy

How the sales and profitability of retailers are

affected by the macro economy and how their

retail strategy influences this relation

Retail Performance in a

Changing Economy

How the sales and profitability of retailers are

affected by the macro economy and how their

retail strategy influences this relation

Management Summary

Preface

Table of Contents

1. Introduction

2. Literature Review

3. Qualitative Research

4. Conceptual Model and Hypotheses

5. Research Methodology