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.

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!

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.