Commentary: Some red flags in January sales results
The year kicks off with a respectable set of retail sales numbers that show continued momentum in the consumer economy. The overall growth rate of 4.9% is a little way above the average monthly growth rate of 3.3% recorded in 2016, something that will give retailers some cheer as they head into 2017.
That said, we believe that there are few red flags hidden in the detail of the figures, many of which suggest that underlying performance, while reasonable, is not quite as robust as it first seems. Retailers would be advised to take heed of this as it indicates the sector is in for another choppy year.
The first point to note is that part of the elevated growth is down to the fact that last year’s comparatives are soft. January 2016 was a weak month for retail, partly thanks to Winter Storm Jonas which disrupted consumers’ regular shopping behavior. The weather was more cooperative this year and most of January went smoothly as far as consumer spending is concerned.
The overall growth rate was also boosted by a sharp rise in sales at gas stations, which were up by 13.9% over the prior year. This is the fastest pace of growth in just under five years, and signals that the era of continuously falling gas prices – which characterized the past two years – is now firmly over. Although the uplift is heavy, it comes off the back of a low base and, as such, gas prices are not at levels which are causing consumers too much pain. Even so, further rises will be generally unhelpful to retail as they will inevitably bite into consumer incomes.
Pure retail, which excludes foodservice, auto, and gas sales, is the other area of interest. As much as the overall growth trend looks good, there are some telling movements in the numbers that make up this total. Many of the bigger ticket sectors – including furniture and electricals – recorded a deterioration in sales over the prior year.
Given that our own data shows consumer confidence started to wane partway through January, this could be an indication of nervousness among shoppers. While we do not expect the declines to persist across the entire year, we do believe that continued uncertainty among shoppers will lead to a very changeable retail environment in which large purchases are carefully considered.
Within retail, some sectors performed better. Clothing was one, and although sales only rose by 0.4%, it marks a change from the declines that were a hallmark of the sector across a large part of 2016. This is mostly down to lower discounting rates across January 2017, which is the result of better inventory control, and fewer overstocks of items such as coats thanks to a much colder end to 2016.
We believe that the year ahead will be a reasonable one for retail, and nothing in this month’s numbers changes that assessment. However, growth will undoubtedly be variable across 2017, and it remains insufficient to benefit all players. The environment will continue to be one of winners and losers.
Neil Saunders is managing director of GlobalData Retail.
January was hot for retailers
Retail sales sizzled in January, beating expectations. Even the struggling department store sector managed to beat the odds.
Retail sales, excluding automobiles and gasoline, grew 0.4% in January, according to the National Retail Federation. (The numbers exclude automobiles, gasoline stations and restaurants)
“The healthy monthly gain was driven by January’s strong payroll gains, retail employment gains and business sentiment,” NRF chief economist Jack Kleinhenz said. “We haven’t seen strong January growth in several years, which indicates that consumers are increasing their spending and remain the leading driver of the economy.”
Every major retail sector tracked by the NRF reported higher sales compared to the previous month, with the exception of furniture/home furnishings stores, whose sales were flat.
Sales at electronics and appliances stores rose 1.6% the biggest increase in a year and a half.
Sales at clothing stores increased 1.0%, the largest rise in nearly a year. Department store sales climbed 1.2%, the biggest increase since December 2015.
Sporting goods stores’ sales increased 1.8%, and sales at health and personal care stores increased 0.7%.
Despite the nearly across-the-board increases, Neil Saunders, managing director of GlobalData Retail, sounded a somewhat cautious note.
“We believe that the year ahead will be a reasonable one for retail, and nothing in this month’s numbers changes that assessment,” he said. “However, growth will undoubtedly be variable across 2017, and it remains insufficient to benefit all players.”
The environment will continue to be one of winners and losers.
Report: Cyber-attacks cost companies more than revenue
Companies that suffer a data breach are subject to customer, opportunity and revenue losses well exceeding 20%.
This was according to the “2017 Annual Cybersecurity Report (ACR),” from Cisco, which surveyed nearly 3,000 chief security officers (CSOs) and security operations leaders from 13 countries in the “Security Capabilities Benchmark Study,” part of the ACR.
More than 50% of organizations faced public scrutiny after suffering a security breach. Operations and finance systems were the most affected, followed by brand reputation and customer retention. For organizations that experienced an attack, 22% lost customers — 40% of them lost more than 20% of their customer base.
Twenty-nine percent lost revenue, with 38% of that group losing more than 20% of revenue. Another 23% of breached organizations lost business opportunities, with 42% of them losing more than 20% of potential business.
And not all attacks are “highly complex.” Criminals are leading a resurgence of “classic” attack vectors, such as adware and email spam, the latter at levels not seen since 2010. For example, spam accounts for nearly two-thirds (65%) of email with 8% to 10% cited as malicious. Global spam volume is rising, often spread by large and thriving botnets, the report said.
While attackers continue to leverage time-tested techniques, they also employ new approaches that mirror the “middle management” structure of their corporate targets. Dynamic changes in the technology landscape, led by digitization, are creating these opportunities for cybercriminals.
For example, new attack methods model corporate hierarchies. Certain malvertising campaigns employed brokers (or “gates”) that act as middle managers, masking malicious activity. Adversaries can then move with greater speed, maintain their operational space, and evade detection.
Meanwhile, cloud architecture intended to open up new business opportunities and increase efficiencies were categorized as high risk. In fact, 27% of employee-introduced, third-party cloud applications intended to open up new business opportunities created significant security concerns for organizations. Adware, software that downloads advertising without user permission, also continued to prove successful, infecting 75% of organizations investigated, the study said.
“In 2017, cyber is business, and business is cyber — that requires a different conversation, and very different outcomes,” John Stewart, senior VP and chief security and trust officer, Cisco. “Relentless improvement is required and that should be measured via efficacy, cost, and well managed risk.”
The good news is companies are fighting back. In fact, 90% of breached organizations are improving threat defense technologies and processes by separating IT and security functions (38%), increasing security awareness training for employees (38%), and implementing risk mitigation techniques (37%).
Leaders also reveal that their security departments are increasingly complex environments with 65% of organizations using from six to more than 50 security products, increasing the potential for security effectiveness gaps.
To prevent, detect, and mitigate threats and minimize risk, retailers should:
• Make security a business priority: Executive leadership must own and evangelize security and fund it as a priority.
• Measure operational discipline: Review security practices, patch, and control access points to network systems, applications, functions, and data.
• Test security effectiveness: Establish clear metrics. Use them to validate and improve security practices.
• Adopt an integrated defense approach: Make integration and automation high on the list of assessment criteria to increase visibility, streamline interoperability, and reduce the time to detect and stop attacks. Security teams then can focus on investigating and resolving true threats.