Funneling Information

Lunch is great. For me, business lunches are even better.

I have, for the last 2 years, hosted a monthly luncheon with eight retail managers from 4 major retailers and two specialty retailers. These casual affairs are generally an open forum, with my refraining from asking questions, allowing for conversation to flow more freely as opposed to shaped discussion. 

It is during these lunches that I have been able to forecast several retail trends, though strangely, those at the meetings have not had similar success.

 A sampling of such trends include:

• Tightening Credit- Almost everyone complained in April/ May about not meeting new credit goals.
  
• Death of Group Think - No longer were items driving businesses, bespoke is now everything.
  
• Guess Work at Merchandising Level - This had more to do with lack of strong item call from consumers.
  
• Trouble for Men's Categories - When most companies saw men's shoe business slow in October '07, the rest of the men's business unit was sure to follow. Which led to...
  
• Women' Career Clothing Issues - It took until the beginning of the Spring, but nobody doubts how devastating this has been across the board.
  

Having a group of highly-intelligent, business savvy merchants from so many companies is a luxury I wish upon any consultant/analyst. I am regularly blown away by the shear magnitude of useful information and ideas that come from our meetings. However, the meeting we held last Thursday was both illuminating and troubling.

It was the first time I felt the group was completely out of touch. Not with retail trends, but REALITY!

They spoke of "hiring up" for the holiday season, "loads" of new merchandise flowing into the stores, "huge" upcoming events that "were going to drive business" and the like. I decided to break protocol and ask a few questions.

1. Had any of the participants been told to watch their staffing levels, especially for post-Thanksgiving business?
   
2. Had anyone been talked to about the many challenges that lie ahead after the Holiday season?
   
3. Had anyone been given instruction this year that differed greatly from last year's game plan?
   
4. Had anyone seen a significant shift in the amount of merchandise arriving at stores so far this season?
   

The answer for each was a resounding and unanimous NO! I can tell you that I am not easily shocked, but this, literally, took my breath away.

The problems facing the retail industry right now are much akin to a Perfect Storm. An economy that has been progressively slowing, a severely tightening credit market, record household debt, record home-foreclosures, joblessness claims at record levels, new credit-card legislation on the horizon and public promising to spend less than the previous year for the first time in years. Perhaps worst of all, a high profile, historic election that distracted the entire public from these realities..., until now. 

Every major retailer has been disappointing with Sales figures for months, and most have done major downgrades on earning forecasts for the 4th quarter. All of this leads one to believe that the upper-level executives at these companies are aware of the tough environment they are facing. So the question that begs out is, why this sentiment is not being filtered down to the store level?

Keeping the stores in the dark may prove easier, or more comfortable, as nobody wants to cause panic at the disco, ultimately though, the lack of full disclosure will lead to less success this season and failure during the first half of 2009.

What can be done now? For starters, communication between the merchant teams and stores has to take place every day. Floor rotations and staffing levels should be worked out via team effort, and done to reflect short trend lines (3-7 days, max).

1. Buyers need to STOP BUYING! On hand inventory is the only important factor right now. If sales stay on the track they have been over the last 30 days, there is no chance you will have money or space for new arrivals come January. I have spoken with executives and store managers at several discount/ off-price retailers, the consensus seems to be that they have too much merchandise coming in right now. This is great for the discount chains (Filene's, TJX, Nordstrom Rack), but ultimately the reason for the surplus is bad purchasing decisions in the regular retailers.
2. Cut store promotions (wine & cheese, celebrity appearances/ signings), as consumers have shown this is exclusively a price-driven retail environment. 
3. The urgency within the stores, should be similar to what executives feel when they are expressing regret for the continual downward revisions of earnings estimates.
4. Focus of moving merchandise like the next seven weeks are your last in business. 

You may come out of this holiday season in good shape, ready to take advantage of the tremendous value on new spring merchandise sure to be awaiting the survivors.

There are too many analysts betting against the Retail Sector this season. The winners that emerge will do so stronger, and in better shape to meet the many challenges of 2009.