No Trend in Retail Recovery
Lisa M. Poulin
Retail activity can indicate an approaching economic downturn as well as a recovery; and while the saying “retailers can lead us into a downturn, and lead us out of a downturn” may be true, we’re not yet seeing sustained improvement in the retail industry.
After a better than expected 2009 holiday shopping season, the dark, economic cloud seems to be lifting a little. It is evident from the improvement in capital markets that there is support for retailers, but the question remains: will the shoppers come?
Recovery indicators
Despite continued high unemployment and flat consumer spending, consumer confidence has risen in three of the last four months. In addition, perceptions about spending have shifted drastically in the last two years – from exuberant, conspicuous consumption to “shopping in our closets” and “necessities only” to today’s sentiment that discretionary purchases are fine, as long as the customer believes that they received the best value.
Retail, right now
Retailers have been cautious over the last year, aligning inventory levels with the current and fluctuating consumer demand, repositioning the brand to match the consumer’s new spending habits and capitalizing on e-commerce trends. Essentially, a retailers’ success boils down to the quality of management’s decisions, the efficacy of their strategies and their ability to respond to changing consumer demand.
For example, the 2009 holiday season was successful for retailers, in part, due to increased discretionary spending. This was fortified, however, by retailers’ realistic inventory levels and reduced cost structures, which were aligned with new consumer demand and spending habits.
To make the transition between downturn and recovery, retailers are relying on a variety of strategies. One such strategy is inventory vigilance. Many retailers vastly reduced their inventory during the downturn. For these retailers, it is now a matter of balance to plan for modest sales while being flexible enough to meet increases in demand. Retailers are being extremely cautious and attentive to their inventory build. They are stocking items that have proven to sell and are keeping a close eye on fluctuating demand. Additionally, retailers have shifted their focus to try to limit inventory as much as possible so they are not left with product at the end of a season, even at the risk of losing sales. (Please see TMA Webinar Industry Update-Retail).
Too Much to Handle - Freight Outlook
Larry S. Field
Today’s freight capacity is tightening both domestically and internationally. As a result, transportation costs are rising. Over the last couple of years, companies that move freight by truck, rail, air or steamship have reduced their fleets in response to the widespread, decreased demand for goods brought on by the economic downturn. Since a high in 2006, freight capacity has decreased by 14%, according to Transport Topics.
However, as the economy begins to improve, there will be more demand for goods, which in turn increases the demand for freight capacity. These factors are triggering a surge in transportation costs and a reduction of available equipment and space in trucks, steamships and rail cars, which are needed to move goods. Companies that rely on freight, particularly manufacturers and retailers, must have a strategy in place to combat rising costs and maintain their ability to deliver goods.
Industry snapshot
Freight carriers posted profits for the first quarter of 2010, the first time since the end of 2008. Additionally, the American Trucking Association reported that truckload shipments have risen 12% over the last seven months and load postings – the listings of available freight posted at truck stops – increased 299% in March 2010 over the same period in 2009.
This is good news for the freight industry and for our economy, but without sufficient fleet capacity and available drivers, products that flow from Point A to Point B will be delayed waiting for an available ship, truck or train. Today, for example, there is a backlog of steamship containers waiting for available space on ships from the Pacific Rim to the U.S. Due to this fact, manufacturers may not meet their production schedules and retailers may not have seasonal product to sell at the right time. These factors could contribute to a stifled economic recovery; one that is trying to grow but is being constrained by the limits of freight capacity (See June 2009 article "Economic recovery may hinge on freight capacity").
After surviving one of the most severe industry downturns on record, it is understandable that freight carriers are being cautious about reinvesting in their fleets.
Additionally, once they order new trucks, the manufacturing lead-time is such that, the new trucks will not be ready to move anything soon. These factors are already beginning to contribute to freight price increases, such as the recent rise in domestic truck and rail rates or the general rate increase (GRI) by international steamships. This trend will continue as the economy improves and demand grows. A good example of this can be found in the busy freight market at the Port of Los Angeles, where it is noticeably harder to find an available truck. Here, there is more freight than capacity, and like the backlog of containers in the Pacific Rim, shipments can be seen on the docks waiting for an available truck.
A $100 million, leading provider of specialty lifting solutions and crane rental services retained Scott Avila, a managing partner at CRG Partners, as chief restructuring officer.
A $250 million wholesale distributor of lumber products engaged CRG to identify opportunities to improve profitability and cash flow.
A $300 million designer and distributor of sunglasses and non-prescription reading glasses retained CRG Partners to provide an operational review of the company, develop the 2011 business plan and lead the implementation of several process improvement projects.
