By Brian Kilcourse, Managing Partner
8/26/2008
This week, the Conference Board will issue its latest Consumer Confidence Index report. The CCI is a number generated from a sample of 5000 U.S. households, and is a widely accepted indicator of consumers’ mood. To give this some perspective, last December the index hovered near 90; last month (July ’08) the CCI stood at 51.9, up slightly from June (51 – the lowest its been in quite awhile). To say that the outlook is pessimistic might seem somewhat optimistic, and that outlook is translated as “extreme caution” while retailers project to year-end (to find out more about the CCI, see http://en.wikipedia.org/wiki/Consumer_Confidence_Index).
So what has this year, with its weird weather, U.S. government incentive checks, and economic uncertainty wrought? And what does it foretell for the rest of 2008? That’s a question we put to the National Retail Federation’s Manager of Media Relations, Kathy Grannis, this week in a telephone call. According to Kathy, “As retailers entered this Summer season, they were probably a bit more cautious with their inventory levels, and that could easily be why we’re seeing retailers switch some shelves to Fall and Halloween items.”
Halloween is not only a kickoff to the holiday season, but it has become a mini-season unto its own. Says Kathy, “Halloween is a big business! It may not generate the type of sales we see for Valentine’s Day or gift giving holidays. Most people tend to buy things for Mom on Mother’s Day or someone they love on Valentine’s Day, but Halloween is really just consumers going out and having fun.” Of course the hope is that the fun will continue right through the 4th QTR.
The contribution of 4th QTR to the total year is of course a big factor in retailers’ projections. Given the uncertainty surrounding the current economic conditions, it might be supposed that retailers want to “smooth” the year out by promoting “mini-seasons” such as back-to-school and Halloween to minimize the potential for a negative impact from an uncertain 4th QTR. We took a look at the last 4 quarter earnings announcements for several retailers to get a sense of how much the 4th QTR contributes to a year, and here are the numbers[1]:
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Target for 4 QTRs ending 03-May-08
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4th QTR Contribution (%)
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Revenue
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31.0
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COG
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32.7
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Operating Inc.
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35.3
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Safeway for 4 QTRs ending 14-JUN-08
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4th QTR Contribution (%)
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Revenue
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23.1
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COG
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23.3
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Operating Inc.
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21.8
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Wal-Mart for 4 QTRs ending 30-APR-08
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4th QTR Contribution (%)
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Revenue
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27.7
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COG
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27.6
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Operating Inc.
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30.6
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TJX for 4 QTRs ending 26-APR-08
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4th QTR Contribution (%)
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Revenue
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29
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COG
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29.6
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Operating Inc.
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38.2
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GAP for 4 QTRs ending 14-JUN-08
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4th QTR Contribution (%)
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Revenue
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29.9
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COG
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29.6
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Operating Inc.
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-24.8
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Tiffany's for 4 QTRs ending 30-APR-08
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4th QTR Contribution (%)
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Revenue
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35.3
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COG
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35.8
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Operating Inc.
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34.1
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It’s tempting to want to guess the next few months based on what the numbers say about retailers’ tendencies. For example, Target likes a good 4th QTR bump and was willing to spend a few extra labor dollars to get it. Safeway tends to be steady-as-it-goes (no “smoothing” necessary). Tiffany’s and Gap both look for substantial 4th QTR contributions, and while Tiffany’s does a good job of managing labor and COG to revenue, Gap … well, what can you say about that?
But according to Grannis, these numbers aren’t outside of the normal range, nor are they necessarily indicative of what could happen this 4th QTR. “We haven’t seen a change in the importance that retailers put on 4th QTR,” says the NRF’er, “but going into this one – it could be the holiday season of holiday seasons. Not only are we going to see retailers pull out all the stops, but we’re hoping that when they were planning this season, retailers knew that free shipping and promotions and in-store specials and loyalty promotions were the way to go.”
To support “pulling out all the stops,” are retailers also abandoning their cautious investment in inventory? “I haven’t heard of anything like that,” says Kathy. To dig into that a little deeper, we talked to NRF’s VP of Government Affairs Public Relations, Craig Shearman. Craig tracks incoming traffic to U.S. ports. Craig told RSR that for total 2008, the NRF and its partner Global Insights now project container volume to be down 4% from 2007. According to Craig, although this number doesn’t directly correlate to an identical drop in sales, “definitely, retailers trying to tighten their inventory management and avoid having leftover product that they would have to sell out with unplanned discounts. In the time that we’ve been tracking (2002) it’s the first time we’ve seen a drop – it’s a serious situation. But if you look at the numbers comparing year over year, the gap is closing – for example, July of this year was down 5.4% from July 2007, but our numbers for August show that the gap is only 2.7%. October will actually be up a little bit, and the gap should close up to 0.3% by the end of the year- so it’s not as bad as it was earlier this year.”
So… does that mean a good 4th QTR or a bad one? According to Gannis, “the Fall pre-holiday activity has really taken off in the last couple of years. It’s not only Fall merchandise such as pumpkins and harvest tablecloths; its now a full celebration of Fall. And Halloween has become a phenomenon – it’s everywhere you look, and a lot of retailers have really taken advantage of adult spending, not just spending for kids. Additionally retailers have only figured out in the last couple of years how to get in front of young adults that typically don’t spend time watching commercials or reading newspapers. It’s Facebook, or the retailer’s website. This summer was huge, with different launches from different retailers <in new media>.”
Well, that sounds like “hope,” and hope is one of the seven virtues, but as RSR has often said, “hope is not a strategy.” That being said, it doesn’t seem that the information available gets better than that, so let’s hope that consumers do go out and have some fun – and that that translates into a decent 4th QTR.
[1] All data from Yahoo! Finance
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