Retailers prep for consumer spending

Marketplace Staff Apr 7, 2010

Retailers prep for consumer spending

Marketplace Staff Apr 7, 2010


Bob Moon: These are puzzling times for U.S. retailers. On the one hand, a SpendingPulse survey for MasterCard out today finds American consumers are willing to spend more than they were a year ago. Luxury items and online sales both jumped by double digits in March. But we’re sending mixed signals.

Apparently we’re dipping into our savings because the Federal Reserve’s latest reading on consumer borrowing is down. That’s mostly because of weakness in credit cards and car loans, and that could dampen hopes for a rise in consumer spending.

What’s a retailer to do? On the line with us now is Sherif Mityas. He’s a retail specialist at management consulting firm A.T. Kearney. Welcome.

Sherif Mityas: Glad to be with you.

Moon: Isn’t this a bit tricky? How much can retailers trust in an actual consumer spending turnaround as opposed to this being just consumers indulging in a little pent up demand here?

MITYAS: Well, I do think there is some pent up demand, Bob. The weather started to turn nice, folks have started to come out and buy. But is it really an uptick? And we believe it’s a time to be cautiously optimistic.

Moon: How can retailers position themselves to jump in on what could be a turnaround in consumer spending, maybe not?

MITYAS: They need to really rationalize what they call the assortment. So take someone in an apparel retailer — an Abercrombie or an American Eagle. When they think about the next new t-shirt, and they have to plan for that, the ability for them to hold back some of that inventory and really redirect it to the stores that are selling it, versus blowing it all out and taking mark downs in the later parts of the season. Retailers that are able to handle that type of inventory control and able to hold back some of the season’s fashions will do better going forward.

Moon: But it varies from sector to sector, right? I mean there’s a lot of difference between Wal-Mart and Saks.

MITYAS: Oh, absolutely. And I think what you’re going to start to see is actually a continuation of the higher-end luxury retailers starting to really do much better, and some of the lower-end retailers also continuing to hold on to some of those value conscious consumers. Folks stuck in the middle: department stores, some of your mid-range retailers, they’ll still continue to need to weather the storm.

Moon: What’s the risk that once consumers scratch this itch, if you will, they could turn around and become cautious again and leave retailers in the lurch? What happens if these retailers jump the gun?

MITYAS: Well, I think what retailers have learned, if nothing else, is not to jump the gun too quickly. Many of them are still holding back on inventories. They’re still being very cautious in terms of investments and new technologies and new stores. And so I think they’re all taking baby steps forward in this recovery because the worst thing they could do is become over-exuberant and cost themselves markdown dollars in the future.

Moon: Well, on the other hand, the flip side of that, what happens if they wait too long?

MITYAS: The issue if they wait too long, yes, you lose some consumers, you lose some revenue. But the negative side of going too quickly is far worse as they realized going into the recession.

Moon: So what’s your best guess here. We’ve been hearing for over a year now about this new frugality with the American consumer. Have we turned the corner, and was that really so much pie in the sky?

MITYAS: Yeah, I think it was. The issue about the American consumer is we all have very short memories. And you know the times of, oh, we have to save, we have to become more thrifty, seems like the last generation almost in terms of consumers’ memories. And so I do think you’re going to start to see consumers spend more. I do believe, though, there’s still this underlying unemployment issue. And until we work ourselves down from the 9, 10-percent level, you’re going to continue to see a cautious improvement, but there is going to be a steady improvement going forward.

Moon: Sherif Mityas is a retail specialist for A.T. Kearney, a global management consulting firm. Thanks for your insights.

MITYAS: Thank you, Bob. Take care.

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