Friday, October 24, 2008

The Economist looks at retailing

The Economist has a worthwhile read on the state of retailing in the US noting, not surprisingly, that the chains that were struggling before the downturn are most vulnerable now. They name some names (not all of which are not the usual suspects): Sears, Target, Whole Foods.

Beyond that point, though, they argue that retailers must respond quickly:

No retailer can afford to delay its response to this downturn in the hope that sales might somehow recover, argues an article by Ashish Kotecha, Josh Leibowitz and Ian McKenzie in the McKinsey Quarterly, published by the consultancy of the same name. This contains a study of the past two downturns in American retailing, in 1990-91 and 2000-01, which found that retail revenues were quick to fall and slow to recover, even once the economy started to pick up. Thus, the authors argue, “retailers should move quickly to minimise performance deterioration”.

That may be easier said than done. Efficiency-enhancing restructuring was already needed in many cases. If retail bosses failed to make necessary changes before, analysts say, it remains to be seen whether they can implement them now.

I was pleased to see, also, that they agree with the point I have made about the importance of getting pricing right in this environment::

Another conundrum is how far to cut prices to shift stock. [...]

Some retailers are finding that deep price cutting may have a perverse effect, according to Mr Silverstein. Rather than see an opportunity to snap up a bargain, today’s value-obsessed American shopper is “just as likely to push the pause button, thinking that if the shop is cutting prices this much now, I might get it even cheaper in a few weeks when the economy gets really bad”. In other words, wait while stocks last.

Not quite such a conundrum if you have the right data and the right tools to analyze the data.

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