The Current State of Retail

It’s no secret that recessions spell disaster for the retail industry as a whole. When layoffs make the rounds and 401(k)s take a beating, one of the first things consumers do is tighten their wallets. Suddenly, retailers selling items previously perceived to be “necessary luxuries” find themselves scrambling for enough sales to keep their doors open. Seemingly unshakable, household-name stores go bankrupt in what feels like the blink of an eye. The current 2008-2010 recession hasn’t been any different, for retailers and consumers alike. But on March 5, 2010, Reuters reported that a tally of 29 major chains spanning “discounters, department stores and apparel sellers” revealed a 4% year-over-year sales increase in February. Modest as that statistic is, it nevertheless represents the strongest gain since November 2007 (a month before the recession began) and gives the retail industry some hope that the worst is coming to an end.

The Biggest Losers

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While retail as a whole rarely fares well during recessions, some stores are inevitably hit harder than others. Accordingly, the current recession has claimed more than its fair share of retail casualties. The first big-name store to go bankrupt in connection with the financial meltdown was consumer electronics giant Circuit City. Prior to going under, Circuit City trailed only Best Buy as the nation’s second largest electronics retailer, operating some 567 stores  across the country. But as BusinessWeek revealed in November 2008, according to Circuit City’s bankruptcy filing the company was forced into Chapter 11 by an “erosion of vendor confidence, decreased liquidity and the global economic crisis.” When massive layoffs, internal cost cutting and $1 billion in loans failed to keep the company afloat, Circuit City conceded defeat and, on March 8, 2009, closed the last of its stores.

In addition to hurting individual stores, the retail industry is also suffering geographically, particularly in popular tourist spots, such as Las Vegas, which relies on its tourists to buy.  A January 2010 article in the Las Vegas Sun found that holiday sales in the area were abysmally low, even when compared to 2008 numbers. Citing Applied Analysis principal Brian Gordon, the Sun stated that October retail sales were “down 19 percent” from October 2008, while taxable sales from July through October were down 20.7% compared with the same period a year earlier. Retail consultant Pamela Joy Ring weighed in: “Las Vegas is no different from what we are seeing nationally except that we are in one of the hardest hit states in the country.”

The Biggest Winners

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Of course, not all retailers are feeling the heat quite as harshly and recession years actually offer a pretty ripe market for others. For example, according to a recently released survey from the International Council of Shopping Centers and Goldman Sachs, MarketWatch found that chain-store sales for the week ending March 27 rose 3.2% from the year-earlier.  The poster child for a chain stores that seems to be doing just fine during the recession is Walmart. In December 2008, USA Today determined that while specialty stores like Abercrombie & Fitch were starved for sales, “millions of consumers continue to flock to Walmart to buy low-price, quality goods.” In March 2009, Forbes observed that Walmart had “scoffed at the recession” (owing to its low costs and the country’s falling gas prices), while a February 2010 BNet article interpreted a rare dip in Walmart sales as evidence that the recession was actually ending and that consumers were perhaps returning to the retailers at which they shopped prior to the recession.

XE.com, citing the International Council of Shopping Centers, also reported that chain store sales rose a slight 0.2% from April 17-24, the sixth consecutive gain, while year-over-year sales jumped the most in nearly six years, increasing 5.5%. Additionally, The Conference Board just reported that its Consumer Confidence Index rose to 57.9 in April, up over 5 points from March and currently at its highest level since September 2008. Things seem to be slowly getting better.

And, according to Census.gov, “total sales for the January through March 2010 period were up 5.5 percent from the same period a year ago”. Drilling deeper, Census.gov determined that, of this increase, “gasoline stations sales were up 26.4 percent from March 2009 and motor vehicle and parts dealers sales were up 14.1 percent from last year.” So people are buying cars and the gas necessary for those cars to run. Where do you think they’re driving?

How Has Shopping Changed?

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In our recent article, ‘The New and Lasting Frugal Customer‘, we mentioned that the last year has witnessed an 11% increase in coupon redemption at stores such as Walmart and Target. This touches on a trend of a new shopper mindset: shop less, save more, spend wisely. As such, more and more shoppers are flocking to comparison shopping sites to search for deals, hoping to see their dollars stretch further and ensuring that they are consistently getting the best price possible. Other consumers take the bargain hunting mentality even further by searching for their food in the woods, lakes or fields near their houses and by using barter instead of cash. The Denver Post reported in May 2009 that barter ads on Craigslist had doubled since 2008.

Has Retail Bounced Back?

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At the risk of sound hasty, it does appear that retail is beginning to display early signs of a resurgence. As noted earlier, Reuters found a 4% year-over-year increase in February, the highest since late 2007. Reuters went on to quote SpendingPulse director of economic research Kamalesh Rao, who contends that although retail spending is “not quite on firm footing”, we are “not experiencing the same stagnation that we saw last year.” Things do appear to be on an upswing, for both consumer confidence and spending, and retailer profit.

Has the Stimulus Helped?

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It’s unclear if, and to what extent, the stimulus bill has helped revive retail spending. Scott Grannis of SeekingAlpha is skeptical, noting that all a stimulus program fundamentally does is “take money from one person’s pocket and puts it in another’s” without creating a net increase in demand for products or services. According to Grannis, the main reason behind retail’s revival  is restored consumer confidence, rather than the temporary, lateral-move stimulus program. The widespread panic and concern which accompanied the recession has since abated considerably, and this most likely has more to do with the early retail bounce back than the stimulus bill itself.

The Future

Recent reports and findings suggest that retail growth will continue trending upward at a modest rate. This seems to go along with the idea that what contributed most to the slowdown was the consumer panic that a global financial catastrophe was about to erupt. As more time continues to pass without that happening, the panic itself starts receding and people start heading back out to the stores. Grannis writes, “money that was stored up is once again flowing into the economy.” And while it is certainly unusual to see a spike in demand without a corresponding decrease in unemployment, most analysts project continued (albeit modest) retail growth throughout 2010.