Flat is the New Bubble
April 6, 2009,
If flat is the new up, what's the new flat?
Coming out of a New York market that produced a small ripple of optimism, a lot of companies are in wait-and-see mode. Will all the sampling pay off? Will the test orders come through? Will consumers start to loosen up a bit?
Three pieces of news that cropped up last week:
While the Consumer Confidence Index last month fell to its lowest point in five years, survey respondents were more pessimistic about the broader economic outlook than about their own finances. Although 45.8% thought the economy would continue downhill over the next six months, only 21.5% said the same of their personal economic situation.
Walmart's chief operating officer told a Morgan Stanley conference traffic is up among both low- and high-income shoppers, with the latter finally buying more than just groceries. Could that signal the first stirrings of reawakened demand?
The Department of Commerce reported that consumer spending inched up in February (by 0.5%) for the second straight month, even as personal income slipped 0.2%. Also falling — the personal savings rate, expressed as a percentage of disposable income, by 0.2%. Hard to tell at this point whether that means consumers are generally comfortable with what they've banked after cutting expenses (cable TV, cell phones, dining out, etc.) or if they simply let themselves off the leash briefly and plan to hunker down again.
So much depends upon the second half of the year — for so many companies. We'll know soon how prickly retailers feel about the back-to-school season and fourth-quarter — merely cautious or extremely cautious.
To the extent that anybody pulls the trigger, it's likely to be as close to need as possible. Suppliers able to respond to a sudden burst of demand may wrap up the year in better shape than they would have expected.
Still, the challenge of pulling off flat year-over-year revenue in 2009 is considerable — especially when you have somewhere from 800 to 1,000 fewer stores in the market. Hence, the outreach to hospitality, foreign markets and — in a few, exceptionally low-key cases — direct to the consumer via the internet.
But there are also fewer competitors, too. And for the long-term health of the industry — and the economy — consumers, retailers, suppliers and the financial institutions that bankroll them need to determine what constitutes a sustainable level of business.
We can't keep riding bubbles. We need to flatten those out, too.