Recession Impact on Retail

If there is an industry that is taking it on the chin in this downturn, it is retail. Like in most industries, while many are suffering, some are prospering (ala Walmart).

As with other industries, some of those prospering will do so because their market position supports continued business in a downturn. That is not luck...that is being strategically smart! After all, until the most recent extended period of prosperity, the U.S. economy has experienced downturns every 8-10 years. Prudent management will build companies that can prosper in good times or bad times.

Beyond strategically thoughtful market positioning, retailers are long overdue for the kind of re-engineering of their businesses that so many other U.S. industries need. The good times have masked the fact which has long been known by savvy retailers that the industry has many fundamental problems.

For years, easy credit for developers had retailers opening new stores at a rapid clip, with each new store often cannibalizing sales of existing stores. The result was not enough customers to support bloated occupancy costs.

We are overstored in the U.S., especially with internet shopping draining off a steadily increasing share of total retail sales.

But, the fundamental problems of retailing go far beyond being overstored. Changing media habits of consumers has reduced the efficiency of traditional advertising. Most retailers have lost the "fun" element in thier business model. And, many retailers have trained their customers to just wait for sales or coupons.

Most troubling of all, most retailers have been slow to embrace comprehensive customer loyalty programs that would have any of us wanting to keep going back to the same store. Couple this failure with store service experiences that are often void of any evidence of customer appreciation and it is no wonder retailing is in the dumps. For far too long, good times have masked the fundamental problems of this industry.

I remain convinced that 30-50% of the retail chains in this country will not only go bankrupt by February of 2009, but ultimately disappear from the retail scene. That is the bad news.

The good news is that the downturn will foster a new group of winners...retailers who create business models that reflect the changing face of retail.

Business models that will cater to changing consumer buying patterns and that support the company prospering in good times or bad times.

Retailing isn't dieing. Retailing, as we have known it, is what is dieing.

And that is a story line that will play out in industry after industry.