Retail Aftershocks
I have been traveling and meeting with Retailers and Consumer Electronics (CE) vendors for the past month. Beginning at CES, where the attendance dropped, the post holiday sales figures have started to come in and the related effects to the decrease are now starting to be felt.
At CES the Consumer Electronics Association predicted a drop in 2009 CES sales of below 1% - which I believe is optimistic. I also attended a presentation by Levin Consulting, where they predicted a much higher drop in CES sales for 2009. My money is on Levin. Adam Levin’s presentation included significant “street level” intelligence on retail sectors, specific accounts, and trends at retail, it was well worth the trip to the presentation. From my other meetings I have independently verified a number of Levin’s data points and predictions.
Going beyond the effect on retailers is the significant aftershock to the economy and employment supporting the U.S. consumer via the retail industry. Circuit City is a good example. With more than 35,000 employees losing their jobs, some 668 storefronts, plus warehouses will soon be vacant. Vendors are owed well over a billion dollars with a few vendors currently holding more than $100 million in unsecured debt of which most will be lost through the bankruptcy. These write-offs will undoubtedly cause additional layoffs due to reduced product demand and cash flow issues due to the loss of the receivables.
Supporting services including freight delivery, restaurants, cleaning services, newspapers, box manufacturers, recyclers, advertising firms, and many others will all suffer a reduction in business due to the demise of Circuit City and other retailers. The after effects have only partially been felt to date. Much like an earthquake, the initial quake of the store closing will cause secondary quakes, and so on.
Many other retailers are decreasing their existing storefront or curtailing expansion plans, contracting their sales space, reducing vendors and SKU count and squeezing suppliers for lower costs to either make margin or reduce retail prices to incentivize consumers to buy.
The government has stepped in and will soon be pulled all the way in by the automotive sector via additional loans and the implementation of tax incentives for auto purchases by consumers. The same has happened with banks the banks got loans or investments, but the money has not made it to small businesses, the major engine for employment, or consumers in a meaningful way.
The American consumer’s way of life may have finally had a correction from the “spend now – pay later” atmosphere of the past few decades, or, most likely, once the economy improves we’ll dive back in.
In the interim, hopefully the consumers will see some real relief from the government such as: interest on consumer debit tax deductions, expansion of small business programs and support, education grants and tax deductions for traditional as well as continuing and retraining education.
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