So last month’s retail comparable sales numbers are out and they are pretty bad.
According to Financo, the specialty retail sector (guys like Gap and Abercrombie & Fitch) was down 1.1% for May, despite comparing against a 7.3% decline last year. Department stores fared better, up 1.8%–but that compares against a horrific last year when the group (which includes luxury players like Saks and Neiman Marcus) saw a staggering decrease of 12.4%. And all this in a month where the late Easter was supposed to help.
In the words of that great retail strategist Dr. Phil, it’s time to get real.
A careful analysis of recent retail performance reveals some upward trajectory in sales, but only when compared to dismal results a year earlier. This is the proverbial bounce off the bottom, not a sign of a true recovery. Gross margins are improving as well, but we must remember that inventories were cut drastically, eliminating that last tranche of inventory that must be marked down dramatically to move. Even in the face of reduced inventories many retailers are still struggling to get back to historical gross margin rates. And that’s because many customers still require greater than traditional markdowns to be enticed to buy. Again, not a sign of a lasting recovery.
The retail sales equation is really pretty simple.
(Capacity to Spend) x (Willingness to Spend) x (Spending Allocation) = Sales
For most sectors capacity to spend is barely budging given continued high unemployment, tight credit and slow disposable income growth. In some areas we are seeing a bit more willingness to spend–if only in comparison to last year’s major pull back. The inability of most retailers to raise prices–combined with many consumer’s willingness to selectively “trade down”–is tending to mix the allocation of spending to lower average retail prices. You add it all up and the retail outlook remains pretty tepid.
So what does this mean for your business?
First, accept that your business is not likely to recover to 2007 levels any time soon. Second, embrace the reality that most of your sales growth has to come from growing share of wallet with existing customers. Third, aggressively seek to understand your customers’ needs (tangible and emotional) far better than your competition. Next, let go of your product-centric ways and lean into that brave new world of customer-centricity . And then focus and intensify your efforts to meet your customer needs in truly remarkable ways.
It may not be easy, but it’s what you know you need to do.