False Positives

In case you don’t know, a “false positive” is a result that is erroneously classified as positive—typically because of a flaw in testing methods or analysis.

False positives can cause major issues.  One obvious example is the concern that can be caused by a faulty medical test result.

In business this usually plays out differently.

Retailers that open their initial new retail concepts in only the very best locations declare the pilot a success and begin an aggressive store roll-out program only to discover they can’t replicate their results on a broader scale.

Recent press declaring that “luxury retail is back” is another example of a false positive.  Industry observers simply have the wrong reference points; they  mistake better performance for good performance.  A deeper dive reveals that sales and profit margins are still well below pre-recession levels.  But the easy year over year sales comparisons—and gross margin improvements driven by unusually lean inventories—make the results look better than they objectively are.

Declaring victory when you are still very much in the battle is a dangerous thing indeed.

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One thought on “False Positives

  1. The real question is what is “back”? If we measure the rebound of luxury retail by it’s ability to hit the sales levels of 2007, aren’t we setting the goal to drive into a new crash? The objective should be a sustainable level of business, based on a healthy customer base of affluent consumers, not a preponderance of “aspirational” shoppers. Leveling out the roller-coaster ride in the luxury sector leads to more predictable earnings, employment and real estate. It would also reduce the temptation for constantly “flipping” companies like Neiman’s, Saks and Barney’s through the private equity markets.
    Oh, I just woke up from my dream. Sorry.

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