Economist Offers Multichannel Retailers Recession Insights, Post-Recession Action Plan

The primary focus throughout the recent National Retail Federation Convention & Expo in New York was how multichannel retailers can not only survive the recession, but also transform and emerge stronger once the economy picks up. During a session on navigating the turbulent economy, Carl Steidtmann, chief economist and director of consumer business for Deloitte Development LLP, noted that one of retailers’ biggest challenges is to give consumers “the will to spend.”

He pointed out that real wages are up 6 percent since last July. “I’m optimistic, because consumers have the means to spend,” he said. “They just don’t have the will.”

Emphasizing this challenge, Steidtmann pointed to three key issues/questions for retailers to ponder:

1. What’s changed with the consumer?
2. What will be the new business restraints once we come out of this recession?
3. What can retailers do about this?

As has been widely reported, among the biggest hindrances to consumer spending has been consumers’ unprecedented level of debt. “Consumers are being forced to deleverage, which will continue for some time,” he said, reminding the audience that from 2001 to 2007, the level of consumer debt increased by as much as it had the previous 40 years. “We literally went on an orgy of debt, going through a period of hedonistic gluttony.”

Any kind of recovery from this no-growth environment, Steidtmann said, won’t be driven by consumer spending, but by increases in business coming back to the U.S., increases in exports to the rest of the world, investments and government spending. “We’ll see a dramatic increase in the role of government spending,” he noted, “to a degree we’ve never seen before.”

After Boomers, Who’s Got Money?
What’s more, many retailers also will have to change their approaches to the customer demographics they seek going forward. “We’re seeing a very different demographic change,” Steidtmann said. “The ’90s were such a great decade because they saw the peak of the baby boomer generation at peak income period. They bought second homes and peaked in their own careers and productivity — all of which created a dynamic and fast-growing economy.”

But looking ahead, aging boomers will downsize and spend less. “As we age, we find ourselves as empty nesters,” he said, “and large houses don’t make any sense anymore. So there’ll be a downsizing of housing resulting in fewer places to put things.”

Steidtmann alerted healthy retailers to take note of other key factors taking place right now:

• In the short term at least, multichannel marketers will have to compete with bankrupt retailers, such as Circuit City and Mervyns, which are selling out their goods at rock-bottom liquidation sales.
• “Everybody’s going to have to become a banker,” he said, because the challenges in the capital markets will drive that.
• Rethink inventory. “We’ll see much higher levels of inflation going forward,” Steidtmann said. “At some point, the economy will pick up, and there’ll be a need to drain those reserves out, which means higher inflation. So your attitude toward inventory will have to change.”
• Finally, he warned retailers that because there’s been little increase in retail employment over the past decade, although retail employees have been more productive, retailers have lost potential managers. Lower-level employees haven’t acquired the managerial skills necessary to move to the top of organizations.

“We lost a whole generation of people who could’ve gone into retail, but haven’t,” Steidtmann said. “And that’ll only continue with the rising unemployment rate.”