Congress, Consumer Confidence, and Holiday Spending

In the last 90 days, we've done training workshops for retailers of all sizes in Orange County, Kansas City, Cleveland, and Indianapolis. In private conversations with many of them we've repeatedly heard the same refrain: "Those turkeys in D.C. are scaring the bejeebers out of our customers! Consumer confidence is being ruined!!!"

As readers of this blog know, we believe that consumer confidence is the true leading indicator of retail performance. Uncertainty about their economic future undermines consumer confidence. The continuing Congressional stand-off on economic policy is only heightening this uncertainty.

Then today we read this report from Yahoo! Small Business Advisor. The last paragraph should be used by demonstrators on The Mall in D.C. Here's the key quote by a retailer from Maryland: 

“We’re finally about to have a Christmas season tacked onto the end of a good year. The last thing I want is to have the news dominated by fear-mongering to scare the heck out of all my customers,” he said.

 Some background leading up to the testimony, as reported by Yahoo! Small Business Advisor.

The Small Business Majority flew in 14 entrepreneurs from around the country for two days of meetings with House Minority Leader Nancy Pelosi, Senate Small Business and Entrepreneurship Committee Chair Mary Landrieu, and members of the U.S. Small Business Administration. They discussed access to capital, healthcare reform, clean energy policies, and legislative solutions to economic issues such as jobs creation. And the entrepreneurs urged Congress to pass bipartisan legislation allowing more credit unions to lend to small businesses.

Mike Brey, president of the Laurel, Md. business Hobby Works and a member of the Small Business Majority's Network Council, told Yahoo! Small Business Advisor that he built his company on the back of SBA 7(a) loans. He said he told legislators that, “While things have gotten better, the way banks use SBA loans have changed. It appears to us that banks are using the SBA to guarantee loans that in a different economic climate they would have been making without SBA.” Brey told legislators and SBA officials that he’s had a good year and would like to open two new stores now and asked, “How can we free up some of those loans that used to be [available] again?” 

Brey recalls how much stronger his business was when the federal budget was balanced. He said he would be willing to pay higher taxes if it helped get the economy on track and pay down the debt. “For me, going back to those tax rates is the tradeoff for having a stronger economy and more customers. It’s a trade off I am absolutely willing to make,” he told Yahoo! Small Business Advisor. 

During his visit to the White House this week, Brey told officials that his toy and hobby supplies retail business does best when customers have confidence that they will have money in the future. 

“We’re finally about to have a Christmas season tacked onto the end of a good year. The last thing I want is to have the news dominated by fear mongering to scare the heck out of all my customers,” he said. “It’s so important that the economic policies get the country back on a path to fiscal solvency.”

Wow! Leave it to a retailer to tell it like it is! Let's hope it's not in vain.

"How high is up?" Moreover, "How LONG is up?"

In the world of retailing, every December is fascinating, challenging, and  - especially when the results are positive! - even thrilling. And this December is no exception.

For whatever reasons, the all-important consumer confidence index continues to rise.  And retail sales are far stronger than expected just months ago. In fact, November was the 6th consecutive monthly increase in retail sales!  It now appears as though they will maintain this robust nature through the end of this month.  

Retailers are basking in this "It's all good!" moment. And, with sales being up more than expected and inventories held in check, margins are likely to be higher. All in all, one of the best Holiday Seasons in years. 

So, we ask, "How high is up?"

Our estimate today is "Not very high."  But more to the point, "How long is up?"  That is, can this level of growth be sustained? 

We think not. We anticipate that the first two quarters of 2012 will look a lot like the first two quarters of 2011, bleak for retailers. Retailers should relish this fine Holiday Season, but must go into Q1 and Q2 of 2012 with discipline and restraint.

• It has been noted that consumers, who on the whole have had more debt than assets for awhile, got religion from recession-fear. For the last 2 years, they have steadily reduced their family debt burden. 
• Then, this Fall, while incomes have been stagnant, consumers started to put more spending on credit than they paid off. And apparently they are continuing that trend through the Holiday Season. My, what short memories we have!
• The unresolved European debt crisis is looking very, shall we say, "European". It lacks a needed sense of urgency. 
• For every job opening in this country now, there are, on average, 4.25 applicants. In healthy times, it's closer to a 2:1 ratio. 
• Moreover, those folks in Disneyland-on-the-Potomac seem frozen in a "Wait for the election!" mentality.

All in all, very disappointing. Especially for retailers as we start a new year. We expect the optimistic consumer confidence to be ephemeral. 

Enjoy it while you can, but don't get too used to it.

Timing Is Everything!

The current economic meltdown, while fearful, is beautifully timed for retailers!

Sure, consumer confidence is down. Businesses aren't hiring. Nobody is lending money. But so what?!

The first ten days of August - unless you sell beer - are the absolute dog days of the retail year. As long as world leaders are getting their abrupt comeuppance regarding their fiscal irresponsibility, the timing for retailers is perfect.

Consumer confidence, although presently in the tank, is fickle. In six weeks, or by the holiday selling season, it could be at the highest in years. This kind of crisis brings leaders worldwide to a new sense of urgency. And we have high hopes that they all have gotten the message.

Retailers - be grateful for this timing. And reassure others to do likewise.

What Do These Upbeat Retail Sales Results Really Mean?

Retail sales results for February have come out, and two major tracking services - Retail Forward and the International Council of Shopping Centers - report that comp store retail sales rose at least 3.7% in February: "their best monthly gains since the economy began its meltdown in November 2007." (In fact, we believe that is the sixth straight month of sales increases!)

Then, ShopperTrak reported that while sales were up in February vs LY (just 1.2% on their numbers), shopper foot traffic was down 3.1%. So, either average transactions were higher, or retailers were better at converting shoppers to customers. (Our bet is on the latter: motivated retailer meets purpose-driven shopper!)

What do reports such as these mean to independent retailers? Especially since they are reporting results of major national chains.

Well, we believe they do matter in several ways. First, they provide yet another benchmark against which to measure your own stores' performance. How were your February sales? You now have some context for assessing your own progress. (And maybe feel a bit better about what you did accomplish!)

Second, it provides insights into how consumers are feeling. Maybe "Frugal Fatigue" is in fact becoming more prevalent. For the 90% of the population that still have their job, they may be gaining some confidence that it is okay to spend.

No question, the spending that does occur will be much more purposeful and restrained than 2007. There is no going back to that! But those retailers who have edited their assortments to better match what their very best customers want will be well positioned going forward.

Even better prepared are those retailers who have been analyzing more than top line sales numbers. When sales are down, why? Fewer transactions? Smaller average transactions? Fewer items per transaction? These insights can be powerful for planning your store's progress in this New Normal.

Third - and perhaps most important about benchmarks - the financial community is reading these reports as well. Bankers and the credit departments of your vendors should be encouraged by these positive signs. In your discussions with them, be sure to have armed yourself with the most recent perspective on consumer confidence.

Remember, unemployment is a lagging indicator of the economy; consumer confidence is the leading indicator, particularly for retailers.

The Tell-Tale Signs of Retail Recovery

One of the constant major annoyances in life these days is the propensity of the media to dwell on – and bombard us! – with negativity.  And never more so than during this recession.  So how should a retailer cut through the flak?  Just bemoan the negativity, and wait for things to get better?

Not in our view.  The better approach: identify the best leading indicators for retailers, and focus on those.

A few days ago we were debating this topic with a very savvy industry person.  "Unemployment is rising, TARP money isn't helping, sales continue to be off, bankruptcies are escalating.  Is there no turnaround in sight?" he kept bellowing. 

When he finished, we bellowed back, "Well, you're referring to trailing indicators. You're focusing on what already has happened, or is happening. Retailers need to monitor and be riveted on what will happen.  That is, what are the leading indicators that 'normal' shopping is about to resume?"

We continued, somewhat more calmly: "The key leading indicator for retailers is known as 'consumer confidence'.  Watch for monthly reports on this from government and private researchers.  (It's been rising slowly for three consecutive months.)"

"And a major component of consumer confidence is the stock market.  Yes, the stock market, where over 2/3rds of Americans have at least some of their net worth involved.  And that's been rising since March 6!"

Most of all, recognize those trailing indicators for what they are: last week's news.  The tell-tale signs of retail recovery will be revealed first in the most important leading indicator for retailers: consumer confidence.