December's Echo

More shakeout from December retail business (click headline to read story):

Saks To Cut 9% of Workforce

Saks, as previously noted, is one of the company's in BIG trouble. Along with cutting 1100 jobs (most of which I cannot imagine coming from New York, where the company is strongest), the company plans to reduce inventory by 20%, has decided to close it's Club Libby Lu chain entirely and suspended a number of benefits to employees.

Let me be the first to say, it won't be enough. Print it.

Macy's Looking to Make Further Cuts

Macy's is planning to cut their four regional offices down to two, eliminating Miami and Atlanta, with New York and San Francisco remaining.

As I stated last month after their announcement of 11 store closings, this is still the tip of the iceberg. I foresee lots more trimming in the near future, as the longer they wait, the more severe the measures needed to right the ship.

Not all my prognostications for the Retail Sector were negative for the Holiday Season.

Video Game Industry Roars in December

A 9% increase for December year-over-year, and 19% increase YTD 2008! 

That is a "roar", if ever I heard one.

The revenue for the industry also was over $5 BILLION for the month for the 1st time in history.

As stated in November, the value to cost ratio for gaming has no rival, with $30-$60 games providing, literally, weeks of entertainment.

Look for this win streak to continue.

Lastly, while most retailers are still refusing to fully face the realities of the new economy, one (the same as always) retailer stands above all the rest in how they are dealing with the downturn, Walmart.

Walmart Sees New Realities for Retailers

Love 'em or hate 'em, Walmart may not be the prettiest girl in the class, but there can be no doubt they are valedictorian. 

Lee Scott was on Charlie Rose yesterday, in what I think is a must see interview. He discussed the impact the economy is having on Small Businesses and suppliers, which has not been discussed with the degree of specificity Mr. Scott shared. 

As they move forward, the focus at their stores will be continued improvement in customer service (he said this is not a slogan, but a actual goal), a better edited buying selection (less is more in his eyes, which is sooooo smart) and better presentation standards (thus making the store easier to shop for the consumer).

Three simple goals, which will translate into a big win for the world's biggest retailer. 

Not sexy, just smart. A formula to emulate if ever there was one.

Many Happy Returns

I was reading Ray A. Smith's article (U.S. Retailers to Report Grim Results)  on the Wall Street Journal website regarding the much anticipated December retail numbers due out Thursday and something sparked a memory of an unusual experience I had yesterday. 

Allow me to share and expand.

I went to my neighborhood Costco (a retailer who's praises I have sung on numerous occasions) yesterday and, as I approached the doors, saw something I have never witnessed before, a line to get in.

Mind you, yesterday's weather in Chicago was in the upper 20's, maybe 30, maybe.

Yet and still there were about 8-12 people standing in an orderly line outside the store. As I moved closer and closer I noticed the line extended some ways inside the store as well.  While walking and searching my wallet for the always misplaced membership card required to enter, I started wondering if the few items I needed was really worth standing in freezing weather.

Just as I resigned myself to the idea, I noticed the line was not to get inside the store, but an extension of the "Returns" line that was now, literally, winding outside the store.

The sight of that line and the thought, sparked by Mr. Smith's article, drove home a point I had not considered, how tough January business is in the retailing business.

This January, much like this December, is sure to be perhaps the worst month for retailing in, excusing the hyperbole, modern history.

Three things are needed to make a Perfect Storm in retailing:

• First, an uncertain economy. A bad economy is one thing, but "better the devil you know", they say. In bad economy, people have already made adjustments and pared down their spending habits. In uncertain economy, which is really a bad economy where people refuse to accept that reality, people attempt to maintain their lifestyles regardless of how difficult the reality of doing so is. This leads to large spending expenditures, followed by mass returns, pawning and borrowing. Sound familiar?

• Secondly, you need swollen inventories. Swollen inventories take up room needed to show new goods, inhibit buying teams from investing in newer, more relevant merchandise and forestall payments to vendors, banks and other creditors. If you consider we just came through the worst holiday season on record, and 4th quarter is when retail inventories swell to their highest levels, inventories are now HUGE, everywhere. This is why you are seeing, "Buy 1 Get 2 Free" signs in place of, "66% Off" signs popping up in stores. They seem to be the same thing,and while the latter gives customers merchandise for 1/3 the price, the former gives customers merchandise at 1/3 the price, but additionally removes two more items from the store's inventory. Inventory is a major problem at virtually every retailer right now.

• Lastly, you need reduced consumer foot-traffic. This point is not as obvious as it seems. Of course January is going to be infinitely slower than pre-Holiday business. However this January is sure to be slower than most because of something I wrote about in November, the greatly reduced number of gift cards sold this past Holiday Season. Gift cards ensure future business, period. When customers decided to steer clear from purchasing gift cards over the holidays, the message was clear, "We are not sure if we will be back, or if you we will be here when we do." The combination of loaded gift cards and huge discounts would have made for a festive January in retailing, instead we have the opposite effect.
  

Coupling these three factors with record rates of merchandise returns brings the problems many retailers face more clearly into focus.

A Perfect Storm has descended on the entire retail landscape and will have a disastrous impact on this, the last fiscal month of the calendar year. Look for Thursday's numbers to be bad, and this month's numbers to only accelerate the inevitable thinning of the retail herd.

Headlines vs Reality

There seems to be a bit more chatter in the press about a "new economic outlook" for the country. Some economists are even talking about a "mid-year turnaround" (read THIS).

Well I did a cursory search on the housing website hotpads.com for "foreclosed property" in my zipcode (60607, click through HERE), and WOW!!!!! I discovered something I could not have known: my neighbors are feeling the absolute crush of the economic downturn already. There is no denying this fact when there are 40 foreclosures within a 6 square block area.

The map below is startling, with each red house representing a foreclosed residential property (CLICK FOR LARGER IMAGE):

Well over 600 foreclosures in 8 of the best neighborhoods in Chicago: Streeterville, Gold Coast, Loop, West Loop, River West, West Town, New East and (oh my goodness!!!!!!!!!!!!!) South Loop, which is starting to get national attention for it's housing woes. 

Read a bit more about South Loop HERE (read the comment section as well, there a few people I truly respect that weigh in on the topic).

This does not even aggregate all the foreclosure data available. There are lots and lots more, but to stare at in visual form on a map just brings the scale of the problem into focus.

Hunker down people, in the world of economist and newspaper people, alternate reality is the new reality. I am not young and I have never lived through what we have experienced thus far, let alone what cometh.

Best of Inbox 01.02.09

Here's the best nugget I found in my box today:

I can't believe I am saying this, but NOW is the time to make your move. 

95% off is less than free. Here is the math on my theory.

If item a is $100 and tax is 10%, then your cost to take it out the door is $110.

If that item is 95% off, the math is as follows:

$100 - 95% = $5 and 10% tax of $0.50, so you are paying $5.50.

That is 45% less than the tax you would have paid on the item at the original price.

So as Jean Luc Picard said best: "ENGAGE!"

Required Reading

I implore you to read THIS article.

It deals with a number of themes I have discussed over the last month regarding the mindset of the American consumer and, most interestingly,  our inability to alter our shopping habits.

The title is the tease:

"People Pulling Up to Pawnshops Today Are Driving Cadillacs and BMWs"

And so it continues to begin...