For most retailers, October 2007 sales were somewhat softer than in previous months. The “whys” include: weather (September and October 2007 were warmer than the same months in 2006), sub-prime loans, declining home values, the stock market, the crisis in Pakistan, etc. There are many reasons for consumers to hold on to their money.
The critical question is: How will each retailer respond to this unfortunate reality? In some cases, retailers avoid making the hard choices and push the day of reckoning into the future. They don’t take timely markdowns, and they slow the flow of new inventory into the stores. This approach provides some short-term P&L relief, but the retailer suffers later on with higher-than-planned mark-downs compounded with lost sales on fresh merchandise.
Trends in Retail Sales
|Department stores||October ’07||90-Day Trend|
|Premium department stores||October ’07||90-Day Trend|
|Midline stores||October ’07||90-Day Trend|
|Mass merchants||October ’07||90-Day Trend|
|Warehouse clubs||October ’07||90-Day Trend|
|Off-price||October ’07||90-Day Trend|
|Specialty stores||October ’07||90-Day Trend|
|Abercrombie & Fitch||–2.0%||0.6%|
|American Eagle Outfitters||–3.0%||2.3%|
|Christopher and Banks||22.0%||9.7%|
|JoS. A. Bank Clothiers||1.8%||3.1%|
|Drug stores||October ’07||90-Day Trend|
|Longs Drug Stores||0.2%||1.4%|
The strongest retailers recognize the real cost of this short-term strategy and avoid it. On Oct. 11, Nordstrom acknowledged the situation and took action. While the company reported positive same-store sales for September, it didn’t achieve plan and had inventory levels above plan. Blake Nordstrom, president of Nordstrom, Inc. explained, “We are taking immediate action to bring inventory levels in line, which will negatively impact merchandise margins for the remainder of the year.” Nordstrom should be applauded for choosing to deal with the situation head-on instead of pushing the problems into the future. Other retailers need to decide what actions they need to take now to avoid a much greater total cost in the future.
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Robert Gordman is the president of The Gordman Group, Denver, and is the author of “The Must-Have Customer—7 Steps to Winning the Customer You Haven’t Got.”