Brace for More of the Same in 2009, Experts Warn

Fresh on the heels of a report from the Department of Commerce that December retail sales dropped 2.7 percent, more than double the 1.2 percent decline Wall Street analysts predicted, comes more bad news for multichannel retailers: 2009 doesn't figure to be any better. Such was the sentiment of a panel of retail experts during a session at this month's National Retail Federation Convention & Expo in New York.

Panelists Peter Solomon, founder and chairman of the investment banking advisory firm the Peter J. Solomon Co., Mark Zandi, chief economist and co-founder of the financial research firm Moody's Economy.com, and Myron “Mike” Ullman III, chairman/CEO of J.C. Penney, rehashed what a devastating year 2008 was for many merchants and provided their forecasts for 2009 and beyond.

Improve Your Financial Standing
Prior to introducing the panelists, the session's moderator, Christopher Donnelly, executive partner at the global management consulting, technology services and outsourcing company Accenture, listed three steps companies can take to improve their financial standings in this troublesome economy:

• be obsessive about your customers, he said, citing an example of Staples Canada implementing videoconferencing with its customer service reps into its in-store experience;
• constantly think about acquiring high-quality talent, he noted, recognizing the current job-sharing program that Proctor & Gamble and Google have formed; and
• optimize your capital base while focusing on your customer base, including looking for solid investment opportunities such as acquisitions during this depressed period.

While hopeful for a positive change with the new administration in Washington, D.C., the panelists said they aren't expecting any miracles. “It's more than dollars and cents; it's confidence,” Zandi said. To help marketers restore this confidence, he listed three factors:

1. The Federal Reserve being incredibly aggressive with interest rates.
2. Wisely spending the $350 billion remaining from the previous administration's bailout stimulus package.
3. A new economic package that's large enough to stimulate spending.

“We have a one-time shot here to borrow at pretty low interest rates,” Zandi noted.

Confidence Is Key
Echoing Zandi, Ullman said a new stimulus package has to take the consumer's point of view into consideration, noting the stimulus has to be big enough and sustainable to help consumers quickly gain back confidence in the economy.

“The U.S. has a one-time shot to lead the global economy's resurgence,” he said, adding that it needs to happen within the first 100 days of President Barack Obama's administration.

In addition to a financial package to stimulate consumer spending, Ullman called for the passage of periodic sales tax holidays. He argued that these events — which could take place three times a year, for short durations (e.g., 10 days each) — would help stimulate demand. The states will be reimbursed by the federal government for the lost revenue generated by sales taxes.

“The key for retail is jobs and confidence,” Zandi said. He proposed a $750 billion package composed of both spending increases and tax cuts.

Credit Crunch
Even if consumers are willing to buy, a lack of credit is constraining many purchases. With the economy in the throes of a debilitating recession, attitudes toward spending are changing dramatically.

“This is a psychologically scarring event," Zandi said. "People won't be able to spend their income,” citing the lack of available credit.

Ullman backed up Zandi's comments. “The next generation is going to have to learn to live their life with what they can afford.”

Where to Go From Here
Solomon advised the audience to take a pessimistic view for 2009, focusing their efforts on survival. “All you want to know is how much cash you have each day,” he said. “Survive, don't worry about investments. Ignore the numbers, harbor cash and then a year from now, look around to see what you should do.”

Solomon also warned that retailers next will be confronted with the issue of inflation vs. deflation. Warning that retailers now must focus on deflation and jobs, the concern in the future will be a sharp rise in pricing within the next three to five years.

This year will be painful, Zandi said. “Prepare in 2010, but don't execute. Be ready to act in 2011 — there may be opportunities, especially globally.”

“We may see some growth in the early stages of 2010," Ullman said, urging the audience to be fiscally responsible this year, especially with tight inventory controls. And to his disappointment, cutting back on staff has become a necessity for most retailers.