MorrisAnderson

State of the Industry

• Amidst the current downturn, consumers have abandoned premium brands in favor of value brands with lower profit margins.
• Consumers will continue to look for lower-priced, higher-value products in the long term, as the industry has burnt out after nearly 20 years of consecutive growth.
• To survive, companies must innovative, reduce costs and focus on smart acquisitions.
• Large retailers will continue to grow by acquiring smaller companies that can’t compete in a tough climate. This is also the trend among distributors.
• Retailers are selectively using small portions of shelf space for loss leaders to stimulate bigger purchases.
• Retailers are moving toward more personalized marketing as consumers use the Internet for tailored, more convenient shopping experiences, especially when they don’t need to see or touch the product.
• Imports are slowing amid concerns of safety and liability, specifically with toys, cosmetics and food products. Many manufacturers, retailers and distributors are sourcing from Mexico or other Southeast Asian countries rather than China because of quality, logistics and cultural issues.
• Executive-level employees are frequently moving from company to company.
• Consumer packaged goods have remained a hot area for investors.

6- to 12-month Outlook

• The United States will regain some of its manufacturing footprint – probably more so in the non-unionized South.
• Resurgence in pricing action will deteriorate volume.
• Private-label and store brands are here to stay. As consumers became more cost-conscious and savvy, these products became more popular, and the lines between private-label products and national brand-name products will continue to blur. This will put retailers back in control as they discontinue many national brands to make space for their private-label products.
• Retailers will contract large quantities of private-label products, decreasing supplier profit margins and, ultimately, forcing some suppliers out of business.
• To survive and grow, department stores will move away from luxury brands to products for the masses – but for many high-end retailers, the prognosis is not good.
• Niche manufacturing will continue to shrink, and may cease to exist in certain segments.
• Financing will remain hard to find, making spikes in inventory during a recovery phase or seasonal changes problematic.
• Escalating steel and copper prices will cause major price increases for products in those categories.