Still nervous about the economy.

I don't know about the rest of you, but I'm still nervous about the economy. I'm not seeing any huge rush back by consumers. Sure there are some comp increases out there but they are on top of two years worth of double digit drops for many retailers. Sure the political pundits can say its getting better, but us long time retailers know there is still a long way to go.

Here are a few excerpts from a good article in The Economist.

In the first quarter both fancier retailers such as Gap, Macy’s and Saks and workaday ones like Target, Wal-Mart and Home Depot all announced improved results. The rebound has been strongest in luxury stores: same-store sales at Neiman Marcus, for example, were 11% higher this April than last. But there was also reason for cheer at Home Depot, which relies on humbler consumers and the still-low housing market: revenues were up by 4.3% on the first quarter of 2009. Sales of home-improvement gear such as paint and gardening tools were especially strong.


Although profits were up at Wal-Mart, sales at its American stores fell by 1.4% compared with a year earlier. “More than ever, our customers are living pay cheque to pay cheque,” says Tom Schoewe, its chief financial officer. “I’m worried,” admits the boss of another large retail chain, privately. “Things seem a little rougher now than in the first quarter.” The effect of the government stimulus is running out and consumers’ finances remain stretched, he confides. The International Council of Shopping Centres, a trade group, recently trimmed its sales projections for May.

Yet the recent improvement is from a very low base, especially at the grandest stores. Neiman Marcus’s strong April marked a rebound from a 22.5% decline in the year to April 2009; the 3.2% increase in revenues reported by Saks in the first quarter followed a 32% decline in the same period a year earlier, points out Steven Dennis, an analyst at Gerson Lehrman, a research firm.


“The assumption that when the recession was over consumers would return to where they were has already been disproved,” says Paul Leinwand, a consultant at Booz & Company. Retailers are investing heavily to track consumers’ behaviour in an attempt to work out what they might want to buy and how much they are willing to pay.

In general, retailers have learned to focus far more on lowering prices, and in particular to stock a larger proportion of products at the low end of the price range. Saks has been especially astute at this, not least by increasing significantly the share of goods on its shelves that carry its own label. This has been a trend across the retail industry in the past two years, and no one expects it to be reversed now that consumer sentiment is starting to improve.

In some respects, it was easier for retailers to plan during the recession, provided they had accepted the gruesome reality, since plunging sales were all but assured. Now, there is great uncertainty about what consumers will do. If the recent uptick in sales proves short-lived, retailers who extrapolate from the latest numbers will spend a miserable holiday season trying to offload unwanted stock at crippling discounts. Conversely, excessive pessimism could lead to empty shelves, disappointed customers and red faces in the executive suite. “I am trying to create the flexibility in our supply chain to deal with both these scenarios,” says the worried boss of the large retail chain. He, unlike the typical consumer, is finding little comfort in retail therapy.

For the full article see The Economist.