By Steve Rowen, Partner
1/15/08
It’s not difficult to find discussion of the “R” word these days. On NPR, impending “recession” comes up in conversations on all but sports recaps.
To that end, The Wall Street Journal revealed some very interesting news last week regarding retailers’ December sales figures. Target reported a five percent loss in comparable store sales. Macy’s (down 7.9%), JC Penney, American Eagle Outfitters and Kohl’s (down 11%) also felt the wrath of customers keeping their wallets closed.
Further, the Dow Jones Industrial Average dropped 1.9% (attributed to investors shifting focus from the mortgage debacle’s effect on financial companies to the harm the crisis may be causing to consumer spending,) and showed that even the high-end market has taken a hit. American Express dropped 10% and Tiffany shares were down 11%, as well.
Who fared well? Believe it or not, TJX Corporation, despite a grueling year of data breach-related press, saw its stock rise 7.3% last Thursday alone. The spike came directly on the heels of the retailer’s announcement of a raised fourth-quarter profit forecast to 60-63 cents. The company cited this jump as the result of “very strong gross profit margins” due to well-managed inventory and expense control.
So while the average American was tight with money this holiday season, it doesn’t mean customers were willing to give up on brands; they quite simply weren’t willing to pay for them.
As a result, while department stores such as Macy’s were in the position of canceling and reducing orders, manufacturers found more willing audiences for their existing close-out goods elsewhere.
To further prove this point, one need only look at Ross Stores, whose stock shot up 20% last week. Katie Loughnot, a spokeswoman for the off-price retailer, went so far as to tell CNN that there were “more opportunities this year because of the macro environment. We were able to pick and choose best merchandise this holiday season.”
And as it stands, discount retailers didn’t just enjoy a great December, but are poised to have an excellent first half of 2008. "With great liquidity in our inventories, we are in an excellent position to take advantage of buying opportunities in the marketplace in January and into the spring-selling season," said TJX Chief Executive, Carol Meyrowitz.
But we at RSR Research believe that though these factors have thus far created economic concern, tremendous opportunity exists for US-based retailers to move proactively. To act as if a recession is in swing (which by economic terms, is still a long ways off), causes reactive decisions that only accelerate the damage. Instead, the forward-thinking retailer is working with its partners to demand more predictive solutions that take into account external influencers – this means truly “intelligent” forecasting technologies that base their predictions on more than just the past.
So as we meet with vendors this week at the annual NRF show, we are poised to ask some difficult but reasonable questions of all those vendors offering merchandising solutions. First – will worries about the economy cause retailers to abandon their customer-centric strategies, or will it force them to accelerate their efforts to maximize their portion of consumer spending?
But we also plan to ask about how merchandising technology is adapting to meet challenges of singularity better. For example, what functionality is being included in the next wave of planning solutions that will help minimize the effect of such phenomenon as economic downturn? What’s being baked in for brand-based retailers to help them keep store inventory low – and pertinent – enough to keep customers out of off-price retailers? How is the next generation able to do more than create forecasts based solely on previous purchasing behaviors?
We’ll get back to you next week and reveal what we’ve found.
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