The New York Times ran an article Sunday extolling some of the issues facing retailers as a result of the domino effect of the mortagage crisis, rising engery and food prices, higher unemployment and now the investment and banking crisis. The lack of consumer confidence has eroded to a point where people are afraid to spend any money and anything.
Further, the article highlighted several things pointing to a deep recession.
The article stated: “In response to the falling value of their homes and high gasoline prices, Americans have become more frugal all year. But in recent weeks, as the financial crisis reverberated from Wall Street to Washington, consumers appear to have cut back sharply. Even with the government beginning a giant bailout of the financial system, their confidence may have been too shaken for them to resume their free-spending ways any time soon.
When the final tally is in, consumer spending for the quarter just ended will almost certainly shrink, the first quarterly decline in nearly two decades. Many economists, who began the third quarter expecting modest growth, now believe the cutbacks are so severe that the overall economy did not expand either, and they warn that a consumer-led recession could be more severe than the relatively mild one earlier this decade.
Consumer spending, which accounts for nearly two-thirds of the economy, grew modestly earlier in the year but fell in July and August on an annualized rate. When the government releases quarterly numbers this month, they are expected to show that consumer spending shrank 3 percent or more. That would be the first quarterly decline since 1990, ahead of the 1991 recession, and the steepest since 1981.”
The losers — apparel, airlines and travel in general, restaurants of all types, automobiles, home stores.
The winners — entertainment and electronincs, and food – not from restaurants, but from grocery stores.
THE REAL WORLD RETAILING TAKEAWAY
Warning signs and signals exist for a reason.
A hurricane, a tornado, a flood, they all offer advance warning. Yet even with advance warning, there are those who brave the weather, often with dire consequences. Just look at anyone who stayed in a Hurricane hotspot like Galveston.
If you haven’t figured out by now that we’re in a deep financial crisis that could last for years — that’s right, years — then you shouldn’t be in retail.
The big guys in every category except perhaps for discount retailing are trimming staff, shuttering unprofitable stores, reducing inventory and cutting large marketing expenses in an effort to remain solvent as consumers close their purses and wallets, and stash what little cash they have under their mattresses.
The latest news is just more of the same. Best to stock up on supplies, get in your bunker and not be foolish enough to think you can weather the storm unprotected.