Retailers Will See This Through

A quick recap of the good, the bad, and the ugly about the economy:

• In September, retail sales (excluding autos) increased 0.5%, the second monthly increase in a row
• Unemployment is not expected to have a material drop for several quarters. (This is traceable in part, we believe, to the widespread need for people to find new jobs in new industries or locales.)
• Meanwhile, so far in 2009, 98 banks have collapsed, and expectations are that 2010 will see more of the same

And yet, we still anticipate that between Thanksgiving and December 31 this year, retailers can expect to recoup about half of last Holiday's loss. (That is, if 2008 Holiday sales were off 9%, expect 2009 Holiday to be up 4.5%.)

Why do we maintain such an upbeat view? Here are the main reasons:

1. Consumer confidence, like the stock market, continues to rise
2. Frugal fatigue will be pushed aside this Holiday season. "Enough already!" will be the motto, especially when it comes to buying for others. (We do expect that the popular "self gifting" of 2007 will be subdued, however.)

The enduring effect of retailers who are more "street smart"

The survivors in retailing will each, in their own way, be much more street smart, which will have an enduring effect on retailing going forward. The retailers of the next decade will continue to realize higher turns on inventory, specially discounted merchandise from vendors, extended terms with landlords, and much greater use of technology, especially utilizing their website.

Retailing is being re-invented right before our eyes!

Now Who's Holding Retailers Back?!

Right now, the changes going on in the economy are simultaneously encouraging and discouraging. What a time to be in retailing!

Yes, the overall consumer confidence level is rising. Finally! In fact, we are predicting that Holiday 2009 sales volumes will, in a macro sense, recoup about 50% of last year's drop. That is, if you dropped 9% last December, you likely will be up 4-1/2% this year. We're that optimistic.

But, what's so discouraging is the reticence of vital groups to get on board with this optimism. Not seeing customers come in is not the biggest hurdle right now for many retailers. Instead, the problem is that vendors, bankers, and other lenders are not coming to the party. They need to get with it: the pendulum is swinging back.

The inherent negativism of banks is holding back retailers' ability to get enough product in for Holiday. Failure to raise credit limits for retailers from now through November may, very likely, stifle the sales potential.

What a shame. A missed opportunity for recovery? Timid creditors may be to blame.

Market Upswing in July Means Strong Holiday Sales for Retailers

"He who lives by a crystal ball must thrive on ground glass for lunch."

Ahh yes, a good caution. But some of us believe that the best indicator of the economic future is the six-month predictor of the stock market.

And July 2009 was the strongest July in decades for the stock market. You saw that?!

So, to us, that fact should bolster the optimism of retailers for this holiday season. It's the cause-effect, cause-effect cycle: the stronger stock market leads to improved consumer confidence; consumer confidence drives consumer spending, which should jump up smartly in December-January (six months after the strongest July in decades.)

That's our view. What's yours? (And, shall we save a date in December for lunch?)

Foolish Prediction? We'll See in Six Months

Last week (June 2) we had a catch-up lunch with a long-standing (high end) retail client of ours who, so far, has averted bankruptcy. Surprisingly, the next day we received the amazing, and accurate, note below. He copied us when he sent this note to vendors, an attorney, an accountant and key staff members. Other than getting a chuckle out of it, we thought you might find some of the thoughts quite useful...or hilarious in five months!

"Hi Ya’ll:

I had lunch with the Seattle retail consultants that I’ve used for years. Pat and Dick have consulted together for about 25 years and are nationally known and quoted in their field. Their business is to follow retail trends at a macro level as opposed to living it down in the trenches like we do.

Here are their two websites: http://www.outcaltjohnson.com/ and http://www.retailowner.com/

Pat & Dick say that, barring no huge negative event in the stock market over the summer (which, of course is possible), they predict that high end retail will bounce back in September and October and that we should expect to see 10-15% increases over the 4th quarter period of 1-2 years ago (as opposed to increases against last year’s decreases—make sense?).

They cite:

• improving consumer confidence;
• improving real estate markets;
• improving numbers and wealth generation of the stock market;
• pent up cash;
• pent up demand.

They see our (high end) customers as being psychologically affected by what’s happening rather than their pocketbooks being directly affected.

Moving forward, customers will be cautious and looking for reasons to buy “value”, which isn’t necessarily related to price. As retailers we need to do a better/excellent job of explaining why high end product is a value, ie: style, quality, longevity, uniqueness, etc.

American consumers, they believe, will not outgrow their “I deserve this” way of consuming.

They predict that in the next 18 months, there will be an unprecedented number of retail start ups and entrepreneurs who see openings in the market because of all the retail failures; one more reason we need to stay on top of our games.

Lastly, they acknowledge that there is little we can do to force our customers to buy. What we should do, however, is maintain the course so that our customers see that we are weathering the storm.

Generally, we should not be changing locations if it can at all be helped and that as small, independent retailers, we need to maintain our WOW factor which requires us to have compelling, exciting stores when customers start coming back in.

It’s all prediction, of course, though it’s educated/experienced prediction. It was a great pep talk for me so I hope it helps you feel a tiny bit better about treading water.

And to quote Pat & Dick: Halitosis is better than no breath at all!

Tim"