From The Co-Founders


Tips, Tactics & Strategic Insights and Commentary
from The ROI Co-Founders, Pat Johnson and Dick Outcalt
Outcalt & Johnson: Retail Strategists LLC; Retail Turnaround Experts

Perhaps you saw that recent article* in The Wall Street Journal. As Ruth Simon reported, "The cost pressures squeezing small businesses – and their need to pass along those higher charges – help explain why inflation has been so stubborn."

  • Over 80% of small business owners cited rising labor costs as the greatest impact on their cost of doing business.
  • Two-thirds of owners identified the rising costs of Commercial Insurance, Goods/Inputs, and Employee Benefits (including health insurance) as most significant. (see chart**)

Maybe you noticed this (see "Retailers Lay Out a Downbeat Outlook"*) but the big national retail chains, despite better-than-expected quarterly earnings this week, still are looking at a year of low to no growth, citing reduced spending by lower income groups, the loss of covid relief money, the effects of inflation, etcetera.

  • "This week, retail executives presented investors and analysts with downbeat outlooks for the first quarter and the year ahead, forecasting that sales growth, if any, will be much smaller than in years past."*
  • "Ross Stores expects sales to be flat for its fiscal year; Kohl's expect its net sales to decline 2 to 4 percent; Macy's said its comparable sales would be down 2 to 4 percent; Best Buy expects same-store sales to fall 3 to 6 percent."

But, here is the key observation, and an important reminder:

  • "To be sure, while there are worries about the outlook, the data so far don’t necessarily suggest that the economy is in or hurtling toward a downturn."  

How to reconcile this doom-and-gloom from the big national retailers with our still-strong economy, which is 70% driven by consumer spending? 

COVID-19 thumbs/EconDept.png

After months of doom-and-gloom headlines and hand-wringing about a recession in 2023, headlines last week (quietly) said this: "What Recession? Some Economists See Chances of a Growth Rebound." One economist, in fact, seemed a little chagrined to note "So far, the U.S. economy has proved unexpectedly resilient." *

  • While economists, famed for not agreeing, still find other causes of concern and worry, this may mean that topics other than the economy can take over the "bad news makes news" coverage.
  • And that, in turn, could buoy consumer confidence, and retail sales. 

Retailers must be mindful of all this as they make their business and buying decisions throughout the year. But the macro economy is simply interesting, but not significant. Your local economy is, of course, what really matters. 

In that context, every savvy owner uses these three steps.

COVID-19 thumbs/Piggy bank - hammer.jpg

Try as we might, it seems that there will be no avoiding a recession in 2023. How deep it is, and how prolonged, still remains to be seen. 

For retailers, it's not a matter of whether your business will be impacted, just how much. Alas, retail does not lend itself to being recession proof.

However, there are ways to make your business more recession resistant.

The place to start? First, find out what your Debt-to-Worth ratio is right now. That is the #1 measure of the financial strength of your business. It's a key indicator of your ability to weather an economic downturn. 

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"Consumer confidence rises to five month high."

That headline from Chain Store Age* brings smiles to retailers.

Consumer confidence is a key indicator of retail sales, and this increasing confidence as we head into the holiday season is very welcome indeed. 

  • Concerns about inflation dissipated further in September—prompted largely by declining prices at the gas pump—and are now at their lowest level since the start of the year,” according to Lynn Franco, senior director of economic indicators at The Conference Board.
  • "Looking ahead, the improvement in confidence may bode well for consumer spending in the final months of 2022," added Franco.

But of course, there is no one-size-fits-all upside here. 

More Spending on Necessities