Retail

A Rebound is Not a Recovery

The news during the last few days has been rife with stories heralding that the consumer is back!   Yesterday one story’s headline opined: “March Retail Sales Surge As Long-Cautious Shoppers Splurge.”

Splurge?  Really?

Clearly retail sales are getting better, and there is some evidence that momentum is building.  But the improved comp. store sales that most retailers posted last month must be put in perspective.  First and foremost companies are comparing against last year’s dismal numbers.  Case in point: Neiman Marcus and Saks DID post solid increases in March (9.6% and 12.7% respectively).  But these increases were against substantial declines the year before–in Neiman’s case almost 30%–as panicked affluent shoppers dramatically cut back their spending.  So even with strong increases this year the overall revenue base is still much smaller today than it was two years ago.

Same story on gross margin.  As earnings have come in over the last few months, the vast majority of retailers are showing significant increases in gross margin rates.  But they are comparing against last year’s markdown-o-rama.  Few retailers–particularly those on the high end–have been able to get close to their pre-recession rates, as many consumers remain unwilling to buy unless they get some sort of deal.

There are two other factors that are worth watching before we declare the retail recession over.  First, it should be noted that March had very favorable weather in most cities and Easter was earlier this year, so the increases weren’t really as good as appear at first glance.  Second, many consumers have been sitting on the sidelines for some 18 months.   The increases in spending may be what some pundits refer to as “Frugal Fatigue.”  I’m sure some of that is true.  I also know that it’s true that as time goes on, things wear out and fashions change.  You can’t shop your closet forever.

So, yes, with the economic picture brightening, and a replacement cycle starting to take hold, business should continue to get better.  But we have quite a ways to go before we really can say we have a recovery, not the inevitable bounce off the bottom.

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