On the Scene -- National Retail Federation ’09: Retailers Face Reality

For the rest of the March 2009 issue of CRM magazine, please click here.

If you listened hard at the National Retail Federation’s Annual 2009 Convention and Expo, you could hear some hope.   

“We’re in an era right now of retail Darwinism,” said Christopher Donnelly, executive partner of retail in North America for consultancy Accenture, on an optimistic panel entitled “The Sky Has Fallen: Now What?” Many retailers will fail in this recession, he added, but the survivors will reinvent the industry.

“Those that will survive are the ones that are realistic about the challenges they face and take decisive actions and get their team motivated to make the tough decisions,” said Mike Ullman, chairman and chief executive officer of JCPenney. “Denial is very dangerous in this environment.”

Years of easy credit allowed consumers to spend above their means, said Peter J. Solomon, founder and chairman of his eponymous investment banking firm; as a result, retailers grew fat on easy money. Now, he said, retailers should only care about cash.

Restoring the economy, however, will require more than measuring dollars and cents. “The key thing for retail is jobs and confidence,” said Mark Zandi, chief economist and cofounder of economic-analysis firm Moody’s Economy.

The United States has 25 million retail jobs, Ullman said—the largest single employment group in the country. Approximately 79,000 retail jobs were cut in 2008 alone. “The [automakers] claim there’s 2 million jobs that depend on the automotive industry,” Ullman said. “That’s just one-tenth of the retail industry.”

Retailers may have to fight to communicate their struggle. Unlike the automakers, retailers are scattered in a long chain from the manufacturer to the sales associate, diffusing an argument that needs a collective voice. Hopes are pinned on the new administration and its bailout package—see another of this month's Insight articles, “Stimulating Citizen Experience”—and while any new president brings expectations, this economy may rely on Obama to restore confidence. “It doesn’t matter how fearful he is of [economic stimulation] not happening,” Solomon said. “He has to repeat it every hour, that it’s going to happen.”

Whether it’s low- or middle-income consumers who can no longer get credit, or high-income consumers whose high net worth may not be as high anymore, this recession will forever change American attitudes about spending, the panelists said. Retailers, therefore, must learn to think more judiciously about operations. Inventory, for example, is often ordered in excess to the demand, resulting in high volumes of waste, Ullman said.

The panelists’ optimism came tinged with practicality. “The next six months are going to be very painful. Six months after that, just painful. Then 2010 will be uncomfortable,” Zandi said, adding that 2009 may be just “a matter of survival.”

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