Retail Experts Optimistic in 2010
New York — Last year, the attitude was all doom and gloom at the National Retail Federation (NRF). This year, at the 99th annual Conference and Exposition, optimism is in the air. "The economy today is measurably better than a year ago," said Mark Zandi, who, on a similar panel a year ago, predicted 2010 would be "uncomfortable" compared to the pain of 2009. The best gauge of this recovery, said the chief economist and cofounder of Moody's Economy.com, is the gradual improvement of the job market. However, panelists say, in order for retailers to experience the level of growth they did in years past, changes need to be made and businesses need to step up.
On January 8th, the United States Department of Labor released the most recent unemployment numbers from December 2009. The rate remained unchained from the month prior at 10 percent, though a notable improvement over 10.2 percent in October, a 26-year high, according to Dow Jones's MarketWatch. Around this time last year, the economy was losing jobs at a monthly rate of around 700,000, stated United States Secretary of Labor Hilda L. Solis in a press release. As a result of the American Recovery and Reinvestment Act of 2009 — characterized most notably by the economic stimulus package — she continues, "we have saved or created more than 1 million jobs." Companies across every sector, especially retail, which employs the most people, will need to increase employment opportunities. "If we don't see [job growth] in [retail]," Zandi said, "then my optimism won't come to fruition."
Allen Questrom, former chairman and chief executive officer of JCPenney and a fellow panelist, agrees that the country's biggest challenge going forward is promoting job growth, but admitted that he was pleased with how the overall retail community confronted the downturn. After reaping the benefits of an artificially inflated economy, retailers are come out of the recession carrying lessons in efficiency, especially on the expense side, Questrom said.
"I think we have a long way to go," Questrom said, noting that retail is still occupying too much space in terms of number of stores and their size. The willingness for retailers to take action is evident in the 27 percent increase in the number of retail companies represented at the NRF this year. "I've never seen anyone go out of business because they didn't have enough, but because they had too much," he said. "You always get more value by having less of something than by having too much." This year, he expects to see fewer companies slashing prices and making dramatic mark downs. Learning from their past pains, companies are more conscious of inventory levels, adopting a "just in time" strategy as opposed to "just in case."
Howard Levine, chairman and chief executive officer, said his company spent more on customer research in the past year than it had in the 10 years prior. In doing so, he reaffirmed one statement that has clearly come out of this recession: Customers want value. How that applied to Family Dollar meant a focus on needs instead of wants, thereby prompting the company to reduce discretionary items such as home decorations, and increase more food items and paper products. "Nothing motivates more than when you have to do something," he said. With cash flows tight, Family Dollar had to watch its inventory levels closely to mitigate any risks and avoid excessive markdowns. Eventually, Levine hopes to see discretionary items pick back up, but says it may take several months, or even years.
While the immediate goal is to increase consumer spending domestically, panelists agree that the only way to achieve significant growth is by expanding into international markets. According to Zandi, approximately 50 percent of the global gross domestic product (GDP) is coming from emerging nations such as China, India, and Brazil, and they also represent the fastest growing regions. "Our economy will only be able to grow at rates we experienced historically if retailers and busineses figure out how to sell to emerging economies," he said. Questrom emphasized, too, that if retailers don't embark on an international strategy, they will be limited to the "growth of America," which is good relative to the rest of the world, he says, but not as fast.
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