By Steve Rowen, Partner
1/22/2008
Last week we speculated about the state of the US economy and how branded retailers’ merchandising efforts could fare in a period of downturn.
This week, global stock markets have already been negatively affected due to fears surrounding the US mortgage market. Hoger Schmieding, Bank of America’s chief European economist told the NY Times yesterday that “There’s something approaching panic in the (global) market. There’s been a reassessment in the market of the U.S. economic outlook, with most people now thinking that there will be a recession,” and the numbers, so far, seem to fall in line with his sentiment. Australian stocks fell nearly 3 percent (the 11th consecutive decline), while the Nikkei in Tokyo fell 3.0 percent, the Hang Seng in Hong Kong fell 5.5 percent and the mainland Chinese index fell more than 5 percent. European reaction to the declines in Asian markets led to a fall of as much as 7 percent on Monday. As a result, the U.S. Federal reserve cut interest rates ¾ of a percent this morning, and the Dow and S&P began a rapid decline.
What we can learn from the past in this situation will be enormously helpful. Paula is quick to point out off-price retailers such as TJ Maxx and Marshall’s really “made their bones” during the early and mid 1980’s, when tight consumer spending led to larger quantities of surplus inventory. At that time, branded apparel that retailers simply couldn’t take into their stores found its way to off-price retailers’ shelves – and the consumer delighted at the deals that awaited her.
But this is a new age, right? Today’s retailer has multiple forecasting and merchandise planning tools to choose from, and is likely incorporating at least a few already. These tools are designed to maximize business intelligence based on past customer behavior. Perhaps they’ve advanced enough since then.
So as we met with the myriad merchandising software vendors present at the annual NRF conference last week, we asked the same question of each: “Can today’s merchandising solutions account for singularities (such as economic downturn) better today than they could 20 years ago?” In essence, can the current generation of forecasting tools help retailers maximize their inventory turn even if the economy slumps? Please keep in mind, this discussion centers around those selling general merchandise and apparel, as food and fast-moving consumer goods retailers are in a position to alter inventory much quicker.
Some of the answers we received were a bit “fluffy,” to be polite. Others shuffled to the fact that Private Label Merchandise is really the best way to combat inventory surplus. Our research indicates the validity of this notion, with half of winning retailers enjoying more than 75% of their total sales from private brand products (compared to laggards’ and also-rans’ 32%), but this really doesn’t answer the question for those selling non-exclusive product.
All in all, the most honest responses we received came back with a resounding “No.” In fact, to quote one CEO, “If today’s technology was capable of compensating for singularities, TJX wouldn’t be doing well.”
But what we liked most about these honest answers was the acknowledgement – particularly by the technologists – that today’s merchandising and forecasting tools are just those: tools designed to aid the merchant’s planning. Seasoned retail merchant teams knew of impending tough economic times more than a year ago, and will make their most educated buying decisions based on intelligence, data, and actual human intuition.
So good luck to all of you merchants out there. A year from now we’ll certainly be wrapping up 2008 by talking about who trusted their instincts – and their technology – best.
What do you think?
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