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Retail Sales: Anybody Buying?

Audio

Aired 7/5/10

San Diego retailers are pushing big Fourth of July sales, especially in big ticket items like cars and furniture. But is anybody buying? We'll check in on retail sales and consumer confidence with retail expert George Whalin.

MAUREEN CAVANAUGH (Host): Since this year we get to make a three-day weekend out of the July 4th holiday, retailers are hoping we celebrate in a typically American way, that is, go shopping. Many retailers are pulling out the stops to get consumers to spend some money but, with the national and local economy still in a slump, what does it take to get San Diegans to part with their hard earned dollars? I’d like to introduce my guest. George Whalin is president and CEO of Retail Management Consultants in Carlsbad. And, George, good morning.

GEORGE WHALIN (President/CEO, Retail Management Consultants): Good morning, Maureen. How are you?

CAVANAUGH: I’m great. Thank you for being here today.

WHALIN: My pleasure.

CAVANAUGH: We invite our listeners to join the conversation. Are you going out to shop for 4th of July sales today? Tell us what you’re looking for. Or have you decided to keep your wallet closed this holiday? Give us a call with your questions and comments. Our number is 1-888-895-5727. George, give us an overview on how retail sales are doing.

WHALIN: Well, it’s a pretty tough time. We’ve – This recession has been very difficult for retailers. We saw, essentially, the business just dry up and go away for a good period of time. And we’re beginning to see some return to stores by shoppers but it isn’t anywhere near to the level or to the amount we’d like to see it but we’re beginning to make some progress.

CAVANAUGH: Now, is that – does that hold true for here in San Diego that the slump continues?

WHALIN: Yeah, it’s pretty much true across the country. There are pockets of areas around the country that have sort of survived all of this but it certainly is true here in San Diego. We’ve struggled with just trying to get back to some normalcy.

CAVANAUGH: Now, is that true across the board or are some high end retailers doing better? Or are the big box stores doing better? Is there any area that looks like it’s doing better than the rest of the retail sales?

WHALIN: There actually are some. There are some categories, particularly luxury goods. We’ve begun to see, oh, really over the last 60 days or so that high end consumers are beginning to consume again. Neiman Marcus has had up numbers the last two months, as have Saks Fifth Avenue and some other upscale retailers.

CAVANAUGH: I see. Okay. Well, I guess that’s – that’s good news for some people. This is a 3-day holiday, as I said, this 4th of July. Is it typically a big weekend for retailers?

WHALIN: Well, it’s a big retail – big weekend for some specific retailers. It’s certainly a big retail – big weekend for garden center retailers and home center retailers. The Home Depots of the world and the Armstrong Garden Centers of the world and those folks typically will do very well this weekend.

CAVANAUGH: And we see a lot of furniture store ads for 4th of July sales. Is that what people shop for?

WHALIN: Well, there are a lot of ads. I’m not sure how much of it – how much more this particular weekend than any other weekend it’s – Furniture stores are an important part of the retail economy and they’ve had a very tough time of it the last two years. And some of them have begun to see something of a rebound. It’s not been a big rush but it’s been a mild rebound for home furnishings retailers.

CAVANAUGH: Now, George, how are retailers responding to this drop in sales?

WHALIN: Well, they’ve done a number of things. The first thing they’ve done is that they’ve cut costs. We’ve seen pretty much across the board, every retailer of every kind has reduced their inventory levels. The selection you find in stores today is not as good as it was two to three years ago. They’ve reduced the number of employees working in stores. That’s been very common. And they’ve reduced the number of promotions, they don’t do as many events as they did in the past.

CAVANAUGH: And what about prices?

WHALIN: Well, prices have reflected this drop in business. It was sort of a quick reaction at first when we – In the fall of 2008 and through most of 2009, we saw aggressive pricing on literally everything you could buy from designer goods to basics, you know, so – but they’ve changed that and that’s begun to level off and we’re now back to sort of some normalcy in pricing again.

CAVANAUGH: I see. We are taking your calls if you’d like to join the conversation. I’m speaking with George Whalin, president and CEO of Retail Management Consultants in Carlsbad. We’re talking about retail sales on this 3-day holiday weekend, and whether or not you’re planning to go out to shop for sales today or if you’ve decided not to. And if you’d like to call us with your reasons or questions and comments, our number’s 1-888-895-5727. So in this recessionary environment, George, what is it that consumers are looking for?

WHALIN: Oh, they’re looking for value. When you begin to think about – We’ve – For a long time, we’ve talked about value in retail and what that means but it’s a littler harder to quantify and it’s certainly harder to – for the customer to articulate that. It’s not just price. It’s more than just price. It’s looking at a product, whatever it is, whether it’s a piece of apparel or a pair of shoes or something for your home, we’re looking at things – the price comparison to the quality, the manufacturer, the brand, how well it’s going to hold up, how long it’s going to last, all of that is incumbent upon making the product reflect some value, so the consumer looks at value in a very different way than they’ve done in the past. They want the absolute most product they can for their dollar today.

CAVANAUGH: And so the whole idea of buying things with – that one feels you can throw away after just a few uses, that’s not the kind of thing people are looking for at this point.

WHALIN: Not at all. Not at all. Consumers are much more value conscious and – and quality conscious today than they’ve been in a very long time.

CAVANAUGH: Is there any feeling that consumers are waiting for prices to drop even lower?

WHALIN: No, I don’t think so. If they are, they’re going to be sorely disappointed, I’m afraid.

CAVANAUGH: Well, you know, as you said, back in the – when people were just getting a hint that we were in a recessionary period and Wall Street was going crazy, you know, you saw a lot of big, big sales like…

WHALIN: Big sales…

CAVANAUGH: …50%, 70%, and in the real estate market apparently some buyers are still waiting for the real estate market to hit bottom. So the – but you don’t – you don’t get that feeling that consumers are holding out for prices to sink even lower.

WHALIN: No, I don’t think so. And I think, like I say, if they do, they’re going to not get what they want.

CAVANAUGH: I see. We are taking your calls at 1-888-895-5727. Brian is on the line from San Diego. And good morning, Brian. Welcome to These Days.

BRIAN (Caller, San Diego): Thank you. Hi, George, it’s Brian Miller from Geppetto’s.

WHALIN: Brian, how are you?

BRIAN: Good. I wanted to add a positive note that I feel like this year sort of a cloud has been lifted a little bit locally and our store sales are up, and I just feel like there’s a better attitude out there with the consumers. And what you said about quality and value is very important. Maybe that’s why, you know, a specialty, a local retailer has – is doing okay right now in this market.

WHALIN: Well, I think there’s two reasons. First thing I think that you – your stores are a great place for people to go and shop for their children and grandchildren but, secondly, it’s a real experience. They get a great experience coming into your stores. And I think that has value, too. I think that has a great deal of value, frankly.

CAVANAUGH: Brian, I’m just wondering, what has sales been like during the last year?

BRIAN: Much better than last year. We’re actually running a very nice increase. Same store sales over last year. For example, last month, the month of June, we were up 9% over last year, which I was thrilled with.

CAVANAUGH: That is good news.

BRIAN: A great sign, I think, hopefully, for the rest of the year to come, too.

CAVANAUGH: Well, thank you so much for the call. And that’s the way you like to see retailers track their – track what consumers are doing rather than relying on consumer confidence ratings, is that right, George?

WHALIN: Yeah, I’m skeptical of numbers that try to put some quantification on consumer confidence. The real measure is always how much you sold. And Brian’s stores just do a grand job. He’s just one of the great retailers, not only in Southern California but in the country. He’s a very good retailer.

CAVANAUGH: We did just hear stories last week about a new drop in consumer confidence. What – where do they get those numbers from? How do they measure that?

WHALIN: You know, I never can get a real handle on those numbers. They’re a scale that somebody has established at some point that says that this is a sliding scale and – but it’s not based on anything that I can tell is a real number. I mean, that sales or returns or traffic in stores or anything like that, so I’m just – it’s – I just don’t know where those numbers come from frankly.

CAVANAUGH: Okay. We’re taking your calls if you’d like to join the conversation at 1-888-895-5727. Paul is on the line from San Diego. Good morning, Paul. Welcome to These Days.

PAUL (Caller, San Diego): How you doing? I’m on the speaker phone. Can you hear me well?

CAVANAUGH: Yes, I can.

PAUL: Okay. Good. Then my attitude is, first of all, I’m not going to spend one penny today.

CAVANAUGH: Okay. Why…

PAUL: And I think that the big problem is that the tail is wagging the dog, and consumers should stand up and have the power of their convictions. If you think that something is a little too expensive, don’t buy it.

CAVANAUGH: Let me ask you, Paul, have you stopped buying – Are you buying less than perhaps you did two years ago?

PAUL: Absolutely, I’m buying less. I’m buying much less.

CAVANAUGH: And why is that?

PAUL: Because the stores are jacking up prices and then they put something on sale. They say 50% off but they jack it up 60% before they knock off the 50%.

CAVANAUGH: Thank you, Paul. Thank you for your comment. Well, George, I’d like you to comment on that.

WHALIN: I can assure you that retailers are not in the business of jacking prices up to lower prices. It is bad business. Retailers want to be in business for a long time. The most valuable thing a retailer can have, the single most valuable thing a retailer can have, is a happy, satisfied, delighted customer, and they’ll do everything they can to make that happen. And it would be foolhardy for them to do anything other than that.

CAVANAUGH: Let’s talk about something that has a very serious connection with the retail – the health of the retail sales market and that is the unemployment rate.

WHALIN: You bet.

CAVANAUGH: The California unemployment rate is still in double digits. How does that affect the retail market, George?

WHALIN: Oh, it has enormous impact. I am more convinced than I’ve ever been that as long as unemployment rates are high, retails sales are going to suffer. And we have seen it time and time and time and time again over the years. I don’t see any – I see a direct correlation between it, and I don’t see any way that it’s good for the economy, it’s good for America, any of these things. It is frankly – unemployment is just not good because of the enormous, enormous impact it has on a broad swath of people. It’s not just the people who are unemployed. It’s their families, it’s their – it’s everybody that’s around them. It’s the people who are worried about being unemployed, it’s the people who are just not sure about what the future of their job is going to be. There’s just – It creates all kinds of problems for the economy and for people’s lives. It is – You know, I am skeptical of politicians sometimes, but the one thing that they need to understand is that the most important thing that they can do today is find a way to get people back to work.

CAVANAUGH: Now is high unemployment affecting sales here more than you think in other parts of the country?

WHALIN: I do, I think California has been terribly adversely affected. When you begin to look at – You know, the governor and the legislature talk about our problems with revenues coming into the state coffers and they can’t pay our bills, that’s because we have this high unemployment rate. People aren’t working. They’re not going to be buying things and not going to be generating any kind of revenue. It’s just the most serious problem we have as far as I’m concerned.

CAVANAUGH: And remind us, George, how much is our economy fueled by consumer sales?

WHALIN: Well, it’s – it varies between about 65% and 70% and it’s almost always above 65.

CAVANAUGH: And so that’s the engine, it would seem, of our – our economy.

WHALIN: It absolutely is. It has been for a long time. And it, you know, I know that there are those in politics who’d like to see that change but until it does, we’re still – That’s where we are.

CAVANAUGH: It seems almost like a chicken and egg situation though. Which comes first, a boost in consumer spending or a sort of a boost in other economic factors that give people more confidence?

WHALIN: Well, I think it’s a combin – always a combination of things. I think when we begin to look at what drives consumers to spend and what drives our economy is that if you feel good about your job and you know – think your company’s going to be there for a long haul, and the price of your home is a fair and reasonable value and you don’t have too much debt and sort of the whole combination of things that have to do with our lives, that’s what fuels our engine. That’s what fuels our economy.

CAVANAUGH: Now, I realize that probably you’re not the best person to ask this of since you’re a retail management consultant but do you think it’s wrong for our economy to rely so much on consumer sales?

WHALIN: I don’t know if it’s a right and wrong thing, I think it just is. I mean, I – it’s certainly not something anybody purposely designed I don’t think.

CAVANAUGH: Umm-hmm.

WHALIN: It’s just the way our economy was built. It’s the way, you know – every country builds their economy in their own way. We did it at one point on natural resources and then we did it on manufacturing, and today we do it on retail.

CAVANAUGH: Right. And so it’s not part of a grand design.

WHALIN: No.

CAVANAUGH: It just happened that way.

WHALIN: No, it just happened.

CAVANAUGH: Besides a decrease in unemployment, people feeling more confident about their employment status, what else needs to change before the consumer confidence starts on the way back up?

WHALIN: Well, particularly in California, we need to deal with the housing crisis. We still have an upside down number of bankruptcies amongst people and foreclosures and people who are upside down in their homes. We got crazy here. I mean, I’m sure you had the conversation with your friends.

CAVANAUGH: Umm-hmm.

WHALIN: You know what, they paid how much for that house? You know, that conversation went on for years here and we kept saying these incredibly inflated prices and values of loans that were just not sustainable and not real. So we have to get that under control. And we have to get – when we begin to get those things, employment and housing, things begin to come together.

CAVANAUGH: Now, I’m wondering, for this three-day weekend, as you say, there are some glimmers that retail sales are doing a little bit better. But how far up do they need to get before they’re where they kind of used to be? That retailers were comfortable with, let’s say, about 5 years ago.

WHALIN: Oh, we got a long way to go. We probably lost a third of our retail sales in 24 months. And I think we’ve got a long way to go before we get back there. And we may not get back there for a good long while.

CAVANAUGH: Okay. Well, George, thank you so much for your good information.

WHALIN: It was my pleasure. Nice talking to you, Maureen.

CAVANAUGH: Yes, good talking to you. George Whalin is president and CEO of Retail Management Consultants in Carlsbad. If you’d like to comment, please go online, KPBS.org/thesedays. Coming up, the Parks Department issues a great white shark warning. We’ll find out what it means as These Days continues here on KPBS.

Comments

Avatar for user 'pathfindersd'

pathfindersd | July 6, 2010 at 10:27 p.m. ― 4 years, 2 months ago

Consumption is not the engine of our economy, what produces wages for consumer is the engine, consumption is a huge factor in it but it's not what drives it, although a cut in this certainly has a very negative effect on it in the short term, but in the long run, less consumption, and more saving, should be part of the healthy economy as well. If you change any piece of the economy in a major way, it will impact the economy in the short term, but you don't get change by continuing the same policies that got you to where you are today.(that reminds me of the a definition of crazy- doing the same thing an expecting a different out come) Consumption based on borrowing more and more in just lessening our standard of living, unless that borrowing is focused on spending that returns something along the lines of earnings, productivity gains, or new innovations. The key to a return to consumer spending is real economic growth, that creates some increase/decrease in the ratio of wages, verse cost of living in favor of the consumer. Fixing our economy means addressing the economy as a whole, not just encouraging consumers to spend more, otherwise you are just shifting the problem elsewhere. For the answer to our economic problems how about looking at "Why Is the American Jobs Machine Broken? This article post on the the "Roubini Global Economics" by Tim Duy Jul 6, 2010 11:41AM should give you some real answers.

The June employment report was decidedly weak, and serves as the latest blow to the V-shapers - if any are even left. It once again left me feeling that something is very, very wrong at the heart of the American economy, something that is much more structural than cyclical. Consider too that US policymakers appear completely unable to adequately address the latter problem, now hampered by fear of deficit spending and the threat of the invisible bond vigilantes. Yet the structural challenges are even more daunting, and I fear that the Washington establishment is simply incapable of the paradigm shift necessary to address these challenges.
http://www.roubini.com/us-monitor/259178/why_is_the_american_jobs_machine_broken_

I would also point Maureen and all your other NPR reports and listeners to required reading economist Nouriel Roubini, who predicted the housing bubble and ensuing economic disaster. Read his book - Crisis Economics: A Crash Course in the Future of Finance.” If you don't have time to read the book, at least scan this short review by the New York Times book review http://www.nytimes.com/2010/06/27/books/review/Barrett-t.html

I want to point out, as Roubini does, that what we are experiencing isn't some cyclical business cycle down turn, but the predictable out come of bad decisions and as Jeff Duy does that there is something very wrong at the heart of the American economy, something that is much more structural than cyclical.

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