Village Solutions

Consumer Rebound

The media is quick to point out the dismal sales performance of numerous retail chains.  Reports of significant decreases in comp sales are reported daily and full economic recovery is clearly tied to a resurgence of retail sales.  While, the end of the recession may be near, retail sales will lag far behind a recovery. Why? There are too many consumers with too much debt, high unemployment, and homes under water to consider shopping for anything other than necessities.  With consumer expenditures accounting for almost 70% of all economic activity and without a confident consumer, retail sales are going to continue in their depressed state, even as other signs of a recovery appear to be positive.

Consumers preoccupied by loss of job security, depleted retirement accounts, and lower home values are not in a buying mood unless it is for necessities like food and the basics with an occasional splurge on experiences and dining out.  This new commitment to frugality is profound and not likely to go away even after a full recovery is under way.  Frugal, practical, bargain hunting will be the operative words when describing the new consumer.

As signs of a recovery increase, store performances over the next several months are going to be very telling for a number of reasons.  First of all, back to school sales have always been an indicator of the upcoming holiday season where retailers typically generate over 30% of their sales and as much as 60% of their profits.  Secondly, we are only about 75 days out from the one year anniversary where we began to see sharp decline in sales last year.  If sales continue to decline throughout the balance of 2009 you will then have a layering of sales decreases over sales decreases.

Typically, when a store has consecutive monthly decreases in comp stores sales, the decreases become less and less as they reach the anniversary of the beginning of the decline.  As an example, Abercrombie & Fitch started off last year’s back to school sales period with flat to marginal sales increases.  Then everything hit the fan last November when many retailers, Abercrombie included, experienced 20%+ decreases.  Now, as they approach the back to school period again one could expect that sales decreases would slow and then modest increases could be expected since they are going up against such dismal sales from 2008.  But retailers are not going to risk another holiday season with steep mark-downs.  They are therefore being very cautious and not stocking their stores with goods that will only need to be marked down to move off of the shelves.  But, the consumer may demand sales and big discounts on the limited merchandise.  If this is the case, this Christmas may turn out to be a disaster for many retailers.

Tags: consumer, consumer spending, economy, Real Estate, recession, Retail

This entry was posted on Wednesday, August 19th, 2009 at 10:49 am and is filed under Retail. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.