Making Sense of Economic Signals: What’s Ahead for Retailers?

It’s easy to become mired in the recent onslaught of economic data and to puzzle over how exactly these numbers will affect the wellbeing of the retail industry. Gas prices are dropping steeply, while job gains are paltry and wage increases equally weak. Same-store sales rose in May while the Commerce Department reported an unimpressive gain in overall retail sales for the month. Moreover, these varied and often discouraging numbers come as retailers face some of their most important annual milestones, including back-to-school shopping and holiday inventory planning. 

The present slowdown is an important reminder of how much can change in a few months, particularly after the strong start to 2012. As retailers navigate an uncertain economic future, the next several months will be critical to their success. The industry is learning to weather the cycles of change and ambiguity that are the reality of a world dealing with geopolitical conflicts, a European debt crisis, and slowing economic growth in China.  For some, this feels like the precursor to a cycle not unlike summer/fall of 2011, when the European credit concerns and general economic slowdown took a toll on consumer spending.

In thinking through potential outcomes for Consumer-oriented businesses for the remainder of 2012, it’s more productive to consider two future possibilities that could influence the actions of retailers and consumers alike in the months ahead:

1. Fed Stimulus: The declines in job and wage growth and consumer confidence led many to speculate that the Federal Reserve will step in to give the economy a nudge in the right direction.  Yesterday’s announcement that the Fed will purchase $267 billion in long-term Treasury securities over the next six months is only a modest step towards growth.  New Fed stimulus could spark business spending, including job and wage growth, which could in turn improve the consumer spending outlook.  Even so, don’t expect the industry to exhale completely as aid make its way into the economy. As we’ve learned since the recession, such Fed boosts are not permanent.

2. The Status Quo: It’s also possible that economic reports will continue their erratic course. While this is certainly not ideal for retailers, the industry is learning to better anticipate and cope with change.  Our 2011 Retail Compass Survey of CFOs found that retail executives are increasingly conservative when it comes to their economic outlook. Business strategy and inventory planning for the remainder of 2012 will likely reflect this conservative attitude.

Yes, economic change happens fast. Even with positive retail sales in the first several months of the year, the wise retailer has planned ahead and is braced for what comes next, be it positive or negative.

What are your expectations for the remainder of 2012?