I’ve been talking to a lot of reporters about this subject over the past few days. Everyone is curious as to what impact, if any the bailout will have on the holiday season.
The leadup: Mortgage crisis, increasing unemployment due to downsizing and shifting jobs overseas (a new report stated that unemployment reached a seven year high last week), increasing food and gas costs, and now the investment and banking meltdown and an extremely tight credit market, which isn’t allowing businesses and consumers to borrow money, grinding the economy to a halt. Add to it the report out this morning that auto sales in August dropped 30 % for Ford and Chrysler and even Toyota (GM fared better with a drop in the mid-teens). This is an economic Katrina that’s unprecedented.
The result is that consumer confidence couldn’t get any lower. And the feeling among consumers is universal that our government is unable to fix this.
The National Retail Federation recently changed their forecast for the holiday season stating that they expect holiday sales to achieve 2.2% growth this year. Here’s the background: the national 10-year average for holiday sales growth has been 4.4%. The lowest growth rate recently was in 2002 when it was 1.3%. Sales growth in 2007 was expected to be 4% and it actually clocked in at 3%, a 25% drop to the forecast and that 3% number was mainly buoyed by electronics which performed better than expected.
I think the NRF has a case of politics, where they can’t say how dim the forecast really is for fear of torpedoing the holiday season even more. I don’t believe we’ll achieve that growth — people are stashing money in their mattresses (okay, it’s in safes now) but the fear is widespread that banks will continue to fail, so people are hoarding cash.
I think the home and apparel sectors will continue to slide, perhaps even moving into negative growth territory this holiday season.
THE REAL WORLD RETAILING TAKEAWAY
We’re in for a rough ride this holiday season, and beyond.
We are not going to recover from this with a simple bailout. This is going to take years to ultimately recover from.
I don’t have to tell you how bad it is. Many of you are talking about decreased traffic, which results in decreased sales. I also understand that your average transaction is decreasing as well.
I’ve seen sale signs everywhere, with merchandise up to 70% off. I’m getting invited to private events at luxury retailers like never before. When luxury retailers need to go on sale, you know it’s not good.
So, what to do? This is bigger than all of us. This is bigger than a marketing campaign. This is bigger than having a sale. This is bigger than trimming inventory. This is bigger than cutting payroll.
Retailers are going to struggle for their very survival over the next bunch of months. You have to be diligent and watch your numbers every single day. Never stop thinking about how and where to trim.