"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.

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.