At the local Old Navy store, in a big mall, a very strange thing was recently spotted… the floor space of the store has been cut in half, using fabric curtains hastily hung from the rafters.
When asked, the manager said, "We’ve downsized; this is how big the store is now."
Excuse me, but what?
What kind of a strategy is that?
All that saves is a small bit of inventory carrying cost and perhaps a couple of employees. But unless they renegotiated the lease rate, their fixed overhead burden just shot through the roof.
Goodbye, profits. Hello weird, unsettling shopping experience.
And now, in today’s news, it is confirmed that this local anecdote is but a thread in a larger tapestry.
Retailers report steep sales declines in October
NEW YORK (AP) — The nation’s retailers saw their sales plummet last month to the weakest October level since at least 1969, as the financial crisis and mounting layoffs left shoppers too scared to shop.
According to the ICSC-Goldman Sachs index, sales fell 1 percent, the weakest October performance since at least 1969 when the index began. That compares to a 1 percent gain in September and well below the 1.8 percent average pace so far this fiscal year, which for retailers begins in February.
Excluding Wal-Mart, the October sales number was down 4.6 percent. The index is based on same-store sales, or sales at stores opened at least a year, which are considered a key indicator of a retailer’s health.
Wal-Mart posted a 2.4 percent gain in same-store sales, better than the 1.6 gain projected by analysts surveyed by Thomson Reuters. Including fuel sales, same-store sales rose 2.5 percent.
Target Corp. — which has lagged behind Wal-Mart because of its heavier emphasis on nonessentials — posted a 4.8 percent drop, worse than the 2.8 percent decline that analysts had expected.
Costco, hurt by currency effects, reported a 1 percent decline in October, below the 3.6 percent gain Wall Street projected.
Among department stores, Penney reported a 13 percent drop in same-store sales at its department store business, worse than the 13.2 percent decline predicted. Macy’s Inc. reported a 6.3 percent drop for October. No estimate from Thomson Reuters was available.
Luxury stores reported steep declines as affluent shoppers cut back on designer clothing. Nordstrom’s 15.7 percent drop in same-store sales was worse than the 13.1 percent decline expected. Saks Inc. recorded a 16.6 percent drop, more than the 11.8 percent decrease predicted.
Gap Inc.’s 16 percent drop was worse than the 11.1 percent decline Wall Street had forecast. The retailer reaffirmed its profit outlook for the third quarter, however, as it focused on inventory control. Limited Brands Inc. reported a 9 percent drop in October, a bigger decline than the 7.2 percent analysts were expecting.
Even teens stayed away from malls. American Eagle Outfitters Inc. reported a steeper-than-expected 12 percent drop in same-store sales, while Abercrombie & Fitch Co. had a 20 percent drop.
To review: this is the worst drop in consumer retail spending since record-keeping began in 1969 (eclipsing even the worst of the ’73-’74 results), and it cuts across all age and socioeconomic brackets.
The fact that Wal-Mart is advancing here at the expense of everybody else tells us that money is very tight out there.
I lay some of this at the feet of the DC geniuses that decided to use a Shock ‘n Awe approach for ramming through the banker bailout bill. In order to create the proper atmosphere, phrases such as "financial Armageddon" and "system collapse" were bandied about.
While this helped to get the public money flowing in time to assure that Wall Street bonuses could be delivered by Christmas, it certainly did not help the mood of the consumer, as evidenced by this shocking fall off in spending.
And still we have not officially admitted to ourselves that we are in a recession.
Bottom line: Together with the fall in housing, commodity, and stock market prices, these consumer spending numbers tell us that this is not your average recession. The speed and the depth of the drop-offs are unparalleled, and we need to be aware that our economic system is being tested as never before. Conserve your resources; we’ve got a long way to go before this plays out.