On Wednesday, the 13th, in Anaheim we are speaking to "the best of the best" in the music retailing industry. We believe the topic of our 90-minute presentation is SPOT-ON, as they say.
After considerable discussion with the group's leadership, it surfaced that the greatest threat to these retailers was not all the issues that get media attention, but was a rather spooky surprise: Mid-management people, those who must execute better and/or differently, often don't truly understand WHY they should embrace change.
What's needed now is balance sheet appreciation. Survival is balance sheet strength; nothing matters more. Nothing! And mid-management that does not clearly understand how to improve a Debt-to-Worth ratio should be rapidly trained or more rapidly replaced. It's as simple and urgent as that.
Google and Amazon As Retailers?!?
Amazon's best-selling holiday item was its own Kindles. And now Google is selling its Nexus One smart phone online, directly to the customer (bypassing Google's previous customer, the phone carriers.)
Yep, selling to the ultimate consumer IS the definition of retailing. Increasingly, manufacturers assume that only they can "do justice" to their product line.
We all know what these companies are trying to do. They have immense confidence in the merits of their respective products, and they think retailing is easy. But it's not just the product. And retailing isn't easy.
The real test is whether these technology giants-turned-manufacturers-turned-retailers actually can be merchants? That is, can they consistently provide value to the customer?
Value: the benefits received for the burdens endured.
In our view, Google and Amazon are asking consumers to assume most of the burdens in these transactions.
- Go to the website, learn about the product, choose the item
- Ring up the transaction; send the money to us safely
- Be available to take delivery of the product
- Have questions? Use the online help forums.
- Have a return? Box it up and send it back.
- And "trust us" about receiving the credit.
Remarkable cost savings for the manufacturer. All those burdensome "retailing" issues have been shifted to the customer. Granted, maybe 10% of the market will think this is wonderful. No muss, no fuss.
Still this nagging question: Will the rest of the customers willingly endure these burdens?
Hasn't Apple proven that there's a role for storefronts "for the rest of us"?
What's in Store for Retailers in 2010?
Now, we have good news and we have bad news. (As though you haven't had enough of the latter.) Oh, and then we have some more good news.
First, the really good news. Although we have been perched out on this limb for months, we still believe, overall, sales between Thanksgiving and December 31 this year will recoup about 50% of last year's decline. In other words, if you were down 8% during that period last year, we expect you will be up about 4% this year. But of course, you will have to aggressively go get it!
Now the not-so-good news. We're projecting that the first three to six months of 2010, overall retail sales will be flat. Don't look for gains after this month. Not only is the economy expected to be a drag, but deflation looms. You probably will sell as many or even more units in early 2010 as last year, but we believe volume will be flat.
Ahh, but back to the really good news. Since your operating expenses and inventories are now down (they've had to be), we believe there can be improved margins even with flat sales in early 2010. You will have to be a real merchant to capture these margins, but they are available.
Remember, anybody selling merchandise is a retailer. It's the merchants who lead the way! And for the merchants, "flat is the new up"!
Hasn't Every Mall Lost its "Real" Anchor?
Retail is a mirror of society. And "society" is moving away from malls.
Consider the important social networking role that stores - and malls in particular - have played since their inception. They were the place that people would go to see and be seen, to meet with friends and neighbors; they were the new, clean, comfortable "Main Street", the new "Town Centre".
And many retailers and malls especially served this "social networking" role for teenagers, or for senior citizens walking their laps in a safe, climate-controlled environment. Pedestrian traffic was assured.
So, what's different today? Digital social networks. Malls as social networks have been supplanted. Now we have Facebook. Twitter. Texting. Even email for those a bit older. Socializing has not gone away, but it has moved away from malls.
In fact, when you are in a mall or shopping district, have you noticed which stores actually are busy? Yep. The Apple Store! Then, the cell phone stores. Are we suggesting that all retailers must sell smart phones in order to succeed? Not at all. But clearly, shoppers still seek social networks, and the tools that enable them to accomplish that.
We believe that every mall has a new kind of competitor; it's no longer the development at the next interchange, but the new emerging forms of social networking that engage the time and attention of customers.
Retailing IS a mirror of society. Isn't it time to bring more of a social networking experience into your stores? Malls aren't going to do it for you.
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
Why do we maintain such an upbeat view? Here are the main reasons:
- Consumer confidence, like the stock market, continues to rise
- 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 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!
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