Richard Seesel

BrainTrust Query: Retailing in the Absence of Recovery

March 15, 2010

FROM RETAILWIRE:
It seems that each week experts look for even the faintest sign that the fabled "recovery" has begun. The problem with a speculative view of recovery is that it's oddly similar to the shortsighted behavior that brought on the recession in the first place. How should strategies change for retailers during this recovery versus those coming out of previous economic downturns?      [more...]

I think the fourth-quarter results from many retailers (moving into the black) show that their strategies have already changed. With few exceptions, comp-store sales were modest at best and even the biggest increases are barely putting retailers back at pre-2008 sales levels. So the smart retailers have figured out other strategies: Tougher expense management and better inventory control. Much of the gain in profitability came from efforts to get fewer goods into the right stores; the reduction in markdowns led to higher margins for many stores.

The good news: Many of these efforts to manage expenses and inventory levels will leverage dramatically if and when there is a recovery in demand. The less good news: Without a real increase in comp-store sales, these operational strategies can only be pushed so far before they become counterproductive through stockouts and declining service levels.