Retailers are entering the fourth quarter with many significant and important questions. The way they respond to these inquiries and respond to the circumstances will dictate their success. Three of the most fundamental questions I see are:

  1. What will traffic be in the store?
  2. What will sales be?
  3. What will margins be?

Let’s apply some logic to see if we can find some likely answers. Many people have lost their jobs (~10%) and even more are underemployed (~17%) which means they are making less money than they did a year ago. All these people will not be taking vacations or spending a lot of money on entertainment like they did before. We are talking about one out of six people; the losses cut across all income brackets from laborers up to executives.

Even with lower credit card limits, tighter credit and less home equity as financial supports, for the most part, these people will not ignore the holidays and will be shopping for gifts. The probability is that they will be looking for less expensive items and bargains this year in addition to the special gifts they buy at regular prices. The best news is there is a form of entertainment that they can still afford and that is shopping. Look for the store traffic to increase this holiday season which is good news for retailers. Keep in mind that now, more than ever before, the more entertaining you are, the more traffic will be searching you out.

Those who have less discretionary income are joined by many others in worrying about what lies ahead. On the positive side, the stock market has run up nicely to about where it was at the beginning of the year. That has released some pent up demand among the 73% of the population who are fully employed. That means there will be a demand for full price goods but also a pull for discount, off price and lower price point goods as well. Balancing the inventory mix will be tricky. No one knows when discounting will begin and how brutal it will be. That means this season your inventory planning, balance and flow is as critical as enhanced selling skills will be to determine your success. With traffic up, conversion rates could be the main dashboard components on which to focus!
Margins are the big unknown this year. It is a question mark whether the chains will pull the trigger on markdowns early again or whether they took a big enough beating themselves last year to buy more prudently and be able to hold the line on discounts. We have been working hard to find ways for clients to boost margins in the face of uncertainty and the moves are working. Certainly the Margin Buying Service is a great key for women’s boutiques to boost IMU to 70% and increase turns at the same time. The holiday suit promotion was a similar opportunity for men’s. More prudent markdown strategies are needed this year to keep up the MMU. There are opportunities out there but retailers must be aggressive to grab them.

There are a lot of other situations and circumstances that will affect retailers – from the scarcity of certain goods to a scarcity of credit available to buy them – but these three stand out as critical. The unknown factor is again extremely significant this year so be adaptable, flexible and keep listening to your market and to your affiliate. These will be the keys to your success.

Happy holidays and good luck!