A new age of reason

Sure, in the States retail spending remains depressed and bosses, at best, refer to sales trends as being “less bad” – easing, as comparatives get softer, towards stabilisation in the second half of 2010.

Optimistic predictions of a ‘V’ recovery path are noticeably mute, but many believe that the dreaded ‘L’ graph will not materialise, and instead a check-mark (or tick) will track our way out.

What is unanimously agreed in the US is that the fundamentals have changed, and changed for good. The view of Wal-Mart chief executive Mike Duke, that “frugality is the new normal”, is being widely endorsed as a gospel truth, and not just within the discount fraternity. Nor does it just apply to consumers. Retailers too are acting more frugally, right across the spectrum.

At the Goldman Sachs Sixteenth Annual Global Retailing Conference on September 9 to 10 in New York, the chief executive of a leading luxury goods retailer, speaking against the backdrop of last year’s rapid and dramatic collapse from double-digit growth to severe double-digit decline, described the situation today as under control with stocks and commitments both down about 20%. 

This sensible husbandry of the balance sheet focuses crucially on avoiding the suicidal level of markdowns that so unbalanced the results last autumn/winter. In the process it also helps educate the customer not to wait for price reductions that might never occur. Such changes in practice and behaviour are here to stay.

Adrianne Shapira of Goldman Sachs describes these shifts in the luxury goods sector “from aspirational to desperational to just plain rational”. This dawning of a new age of reason aptly applies across the whole retail sector. Consumers are acting more reasonably (savings on the rise, purchases being deferred) and retailers know they must give their customers good reason to shop in their stores or on their websites.

The one good reason why they won’t, of course – and this remains the unwritten shibboleth on every store front – is if they fear for their jobs. All commentators and retailers agree that expenditure will only rebound when the labour market strengthens again.

In Australia, there is a palpable buoyancy in consumer confidence, which rose 5.2% this month to its highest level in two years. Aussie shoppers, it seems, remain characteristically gung-ho. One underlying reason must lie in the unexpectedly low unemployment figures, which stand at 5.8% at present against government forecasts of 8.5%

No wonder some big US names are springing up down under once again. Costco just opened to great acclaim and Lowe’s has announced its imminent arrival. Who will
be next?

Michael Poynor is chief retail adviser to PricewaterhouseCoopers