Flagging retail confidence

A few weeks ago I wrote about the lead up to the Christmas and New Year in Australia, New Zealand and the US, and the real sense that this holiday season will be much better than the last.

At the time we had US retail sales data from the week of November 12, showing a comfortable increase on the same week in 2010 which was up 3.1% across all retail sectors.

The next big data day to follow in the US was “Black Friday”, which falls on the three day Thanksgiving holiday weekend and traditionally, takes many retailers into their most profitable period.

This day takes its name from the fact that many retailers are through their months of losses, being “in the red” and into profits “in the black”. It’s sobering to realise that many retailers don’t make money for eight to 10 months of the year, but have huge profits based upon huge sales in key months.

This year’s Black Friday came in with a very large and positive bang. The small but very welcome 3% increase in early November grew into a 16% increase over the Thanksgiving week, with American shoppers spending almost US$54 billion.

Now let’s take a moment to think about this, and compare performance at retail between the US and Australia in late 2011.

The US has been in a very serious recession for almost three years. Job losses were high in 2008 and 2009, and job creation has been slow through 2010 and 2011. At the heart of American business, not just retailing, lies a philosophy that says: “If it isn’t working, change it”.

There is a very fast innovation cycle that exists to ensure that shoppers get what they want at the price they want. And US shoppers don’t get hung up on how it all happens. It’s just a natural cycle of change that meets their needs.

So in 2008 when the US shopper’s supply of money just dried up, many US retailers shut up shop because they couldn’t handle such a fast slow down.

The larger US companies took the time – but not too much time – to reflect on where they were in relation to shoppers needs and worked to close the gap quickly. They did this on the back of a very weak dollar. Yes, a very weak dollar that wouldn’t buy very much overseas because their interest rates were low to assist business and shoppers by not taking too much out of their pockets in interest payments on debt.

As a result many retailers turned to US manufacturers to help them design, source and manufacture new items to a new price point. And they have – so US shoppers have started to spend again, even though they are saving too.

What still amazes me is that in Australia we too have innovated and prices have fallen, but, we haven’t been through a recession. Although we haven’t seen major job losses, we are struggling at retail because Australian shoppers are still too cautious to spend. We have no confidence in the future.

We have money in our banks, a strong economy and every reason to spend. Bar one: Confidence in ourselves and in our country. That’s a marked contrast to shoppers in the US. The Conference Board Consumer Confidence Index increased to 56.0 in November, up from 40.9 in October.

Between New Year’s Day and mid January 2012 several smaller and mid-sized retailers in Australia will close their doors or change hands.

It won’t be the severe fall out we saw in late 2008 and early 2009. Rather, it will be the last sigh and final death of the 2008 GFC on retailing in Australia. Sadly for those two or three retailers, it needn’t be this way.

I hope I am wrong. But only a mind shift between now and New Year’s Day will change that.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.