Tag Archive for 'Economy'

On the Hunt for Unique Economic Indicators

Published on May 26, 2010 in Kyle Bingham. 0 Comments Tags: , , , , , .

Kyle Bingham, Pitney Bowes Business Insight

Economists look at a variety of sources for indications of economic recovery – sources like national statistics on unemployment filings and consumer confidence scores. Lately, local indicators have been catching my attention. I live in a small town of 4,000 in the state of Michigan, a state which has the highest state unemployment rate in the country. Since 2007, four homes on my street have gone into foreclosure, but in the last year, all four of those properties have been sold. Although the sale prices of those homes are significantly lower than their values 3 years ago, the sales themselves may signal that the overall supply of foreclosures is decreasing. But while some local indicators are signaling economic improvement, others are showing that the economy is still struggling.

Local indicators abound. Recently, I took my vehicle in to get fixed at my automotive repair shop. When I quizzed the repairmen about business, they said it couldn’t be better. In the recession, it seems people are holding onto their vehicles longer to avoid high car payments, which translates into more trips to the shop for repairs.

Here’s an odd economic indicator: according to my uncle, a hearse driver in the central Wisconsin town in which I grew up, business is down because more people are opting for cremation, a cheaper alternative to burial.

Time magazine had an article that highlighted some odd economic indicators, like the increase in hikers on the Appalachian Trail. An article in Kiplinger.com took another amusing spin on economic signals, with 10 unique indicators to watch during the recession. I had no idea that, in some areas, the increase in bug bites may be attributed to the recession! A recent article in The Wall Street Journal cited an economist in San Francisco who can gauge the local economy by examining passenger tallies from the transit system near the Union Square shopping district.

Obviously, it is more relatable to talk about indicators at the local level, but what is interesting is that we don’t hear about these so-called indicators when the economy is doing well. Maybe in good economic times, people are too busy making money to notice. While it is fun to debate the local economic drivers, it is also important to follow the traditional market indicators. Pitney Bowes Business Insight has developed its own product, called MarketPulse, which correlates economic indicators with market-by-market sales performance of retailers and other operators.

What indicators are you seeing as both positive and negative? traditional in nature and more unique? Is your barber cutting more haircuts? Are there more moving vans at the local truck rental (more people moving into town than leaving)? How are sales at the local gift shop? Did your Girl Scout troop sell more or fewer cookies this year? Are parking tickets up or down in your town? Hopefully, all the signs point to an economy in recovery. Whether they get back to pre-recession levels, though, is fodder for another blog post.

Spring Ahead: The Grass is Getting Greener on the Retail Side

Published on April 28, 2010 in Deb Purcell. 0 Comments Tags: , , , , .

Deb Purcell, Pitney Bowes Business Insight

Ah..spring! A time for renewal and growth. Green shoots are emerging from the thawing ground and buds are blossoming, spreading cheer and optimism of even better days to come. The parallels between the current phase of nature’s cyclical routine and recent retail trends are striking. After hunkering down for a long, seemingly endless, frozen, and lifeless period, consumers are awakening to discover and cultivate new growth. Last week, the Commerce Department reported widespread sales gains in March. A recent Wall Street Journal article on the subject noted that this month’s gain was the fifth in six months, and that “consumer spending is on track to grow at an annualized rate of 3% to 3.5% in the first quarter, which would be the best showing in three years.”

You have to start somewhere.

New growth is branching out from necessity purchases to include postponed repairs and maintenance, even spruced up wardrobes. As consumers regain confidence, they begin to make smart purchases on safe, classic styles, much like the first shoots off dormant plants are those that become strong limbs that support eventual foliage. USA Today reports that the consumer behavior is beginning the shift toward discretionary purchases.  Pent-up demand from consumers who were living off their stores during the “long winter” is driving shoppers out to replenish their own depleted personal inventories. Small indulgences begin to enter the purchasing mix, such as eating out at fast-casual dining. Eventually, those who have weathered the storm decide to celebrate, and their mood will be reflected in their purchases. This change will not happen over night, but the pattern is predictable and undeniably underway.

The thaw.

As consumers come out of hiding, another key enabler of recovery-credit-is also emerging from the deep freeze. As home prices stabilize and volatility in financial markets runs its course, investors are also increasingly willing to leave their safe havens and entertain new ventures in an effort to reap higher returns. Healthy operators will be the first to leverage the opportunity and take over the most fertile ground, markets that offer the greatest consumer demand, healthy job prospects and stable or rising home prices. According to Kiplinger retailers and restaurants face a tougher lending environment than other small business types, but as consumer demand reappears, credit to support new growth will become increasingly available during 2010. Think of it as fertilizer.

There are naysayers who believe that new growth may be stunted by continued high unemployment or that a double-dip recession is possible, but for today I choose to inhale the sweetness of the positive news, allow the possibility of better times ahead to affect my outlook, relax just a bit…and maybe even go shopping.

Zombie Retail

Published on April 23, 2010 in Eric Steckling. 0 Comments Tags: , , , , , .

Eric Steckling, Pitney Bowes Business Insight

As Americans and consumers, we have all witnessed the decline of countless national retailers in the past decade only to see them rise from the dead and live again. When a failed company is dismembered by bankruptcy court or investors, one intangible asset is generating interest; the company name. One question persists, if a brand failed to be successful in the retail arena, why would anyone want to invest in and perpetrate a brand that consumers have largely abandoned?

Each zombie puppeteer has different strategic reasons for acquiring the rights to failed corporate identities but one underlying theme prevails; brand equity. As a brand matures, customers become familiar with the company’s offerings, product assortment, pricing, ect. This “familiarity” coupled with millions of dollars spent annually on advertising can turn into loyalty and goodwill. This customer recognition is extremely expensive to create from scratch, which is why it is often appealing to resurrect a brand.

Once a $2 billion a year company, CompUSA succumbed to increased competition and torpid sales. Even though CompUSA closed most of its stores in 2007, consumers are largely still aware of the corporate name, identity and offerings. Acquired by Systemax in early 2008, arguably the most valuable piece of the company was the website and logo which is still used to sell merchandise online. The company is now reinvesting in their store network (see Retail 2.0: Brick vs. Click). After 60 years in business, Circuit City fell victim to the same perils as CompUSA. The $14 million Systemax paid for the company’s identity will probably top the price fetched by the company’s former 288,560 square foot headquarters recently returned to its lender. The building recently appraised for $46.2 million is listed for sale for $11 million.

When a retailer comes back to life with an internet only business model, name and reputation are by far the biggest assets they have to drive traffic and sales. With mitigated real estate, inventory and labor costs, online only retailers have much fewer expenses than their brick & mortar counterparts, allowing them to profit on much lower sales volumes. The next question is who is the next national retailer to close shop and serve your town from the sidelines of the internet? My guess: Blockbuster Video.

From Deserts to Desserts

Published on April 14, 2010 in Shawn MacDonald. 0 Comments Tags: , , , , , , .

Shawn MacDonald, Pitney Bowes Business Insight

Lately it has been fashionable for national media outlets to spotlight the failures that have been plaguing Detroit for the past several decades and administrations. In June of last year, The Wall Street Journal Online edition published an article highlighting the mass exodus by national retailers (Retailers Head for Exits in Detroit – WSJ.com). Then, Time Magazine established Assignment: Detroit, a year-long endeavor where several journalists (including Detroit native Daniel Okrent) live in an east side home and write about everyday life in the beleaguered city (The Detroit Blog – One year. One city. Endless opportunities. – TIME.com). More recently, Time’s sister online publication Life.com chronicled Detroit’s demise through a series of photographs (Ragged Glory) that depicts the extent of the city’s urban decay (Detroit: Still Life – Photo Gallery – LIFE).

Now, I am not saying that Detroit’s struggles should not be the focus of national media scrutiny. In addition to the decline of the American automobile industry, much of the city’s plight can be linked to past administrations hard-line stances that they can go it alone. That is, without the help of the suburban civic leaders who have been more than willing to come to the Detroit’s aid over the years. Furthermore, an archaic tax code has made it increasingly difficult for businesses to prosper, all to the detriment of the city’s residents.

When Hudson’s flagship store on Woodward Avenue closed its doors in the 1980’s, Detroit became the only major city in the United States without a department store within its city limits. Now, the city owns another distinction – the only major city without a national or regional supermarket chain. In 2006, Farmer Jack was sold piecemeal to several buyers, ending the chain’s long reign within southeast Michigan. In addition to Farmer Jack, the city was once home to many banners such as Kroger, A&P, Wrigley, Great Scott!, Packer, and Chatham. Today, only Kroger remains, although none of it supermarkets are within the city.

However, Detroit is not alone in its struggles to offer residents quality supermarket options. Of the 15 poorest cities (based on the percentage of residents living in poverty), nine are under-served (less than 2.5 square feet of space per resident) by supermarket chains with at least 25 stores, as the following graph depicts:

 

Conversely, among the Top 25 largest US cities, ten are rife with supermarket chains having more than 3 square feet of chain supermarket space per resident. Of those ten cities, the following six have more than have more than 4 square feet per resident and may be considered “over-served”: Phoenix, AZ; Columbus, OH; Fort Worth, TX; Indianapolis, IN; Austin, TX; and Jacksonville, FL.

 

True, poverty levels in these six cities are significantly lower which may account for a more inflated ratio. However, it is not as though the poorer cities have significantly less demand for grocery-related items. In fact, on average, demand for grocery-related items in the “Under-served Nine” is 90% of the “Over-served Six” level despite having 86% less chain supermarket space. Can you say “untapped potential”?

 

So, how does the playing field become leveled?

Well, to the rescue here comes… drum roll please…The United States Government!! Now hold on, this is a good thing. As part of her initiative to combat childhood obesity, First Lady Michele Obama is spearheading a campaign called Healthy Food Financing Initiative, a $400 million effort to end “food deserts” in some of the nation’s largest and poorest cities. The program will be modeled after a Pennsylvania initiative that has produced more than 80 supermarkets in the past five years, where nearly 400,000 people now have access to better food choices while supplying about 5,000 jobs.

To underscore the administration’s commitment to this cause, Jeff Brown, owner of the 10-store Brown’s Super Stores (a ShopRite affiliate), was not only recognized in the President Obama’s State of the Union address, he was also a guest of Mrs. Obama. A fourth-generation grocer, Mr. Brown has been very active in Pennyslyvania’s Fresh Food Initiative. Please reference this link for more information: Success in Pennsylvania Stirs Hope for Food Deserts

The idea is catching on! New York, Louisiana, Illinois, Colorado, and New Jersey have all launched similar programs. So far, independent supermarkets have embraced these programs while reaction among chains has been lukewarm. Given the tremendous untapped potential combined with government incentives, this soon may change.

Despite all of the rancor and partisanship in Washington these days, this initiative seems to have bipartisan support. And, as long as there are no strings attached (like the auto and banking bailouts), Democrats and Republicans should be eager to “bring home the bacon” to food deserts within their districts.  The jobs these supermarkets provide will be the “icing on the cake”, which would be a tasty dessert!!

Retail 2.0: Brick vs. Click

Published on April 1, 2010 in Eric Steckling. 0 Comments Tags: , , , , , , , , , .

Eric Steckling, Pitney Bowes Business Insight

CompUSA is attempting to neutralize the Internet’s one big advantage: Information. In an effort to improve the retail shopping experience, CompUSA has upgraded 23 of its 32 stores to the “Retail 2.0” version. Chief executive of parent Systemax Technology Products Group Gilbert Fiorentino has designed new product displays that include touch screen computers which provide specifications, pictures, customer reviews, competitor’s prices and other information about the products on display. The idea was to change the passive approach to retail and engage the customer. CompUSA has found that information empowers the customer and allows them to make more informed decisions, which Fiorentio says is translating to loyalty and increased traffic.

So what’s next for “Retail 2.0”? Amazon.com often gets me to buy items by simply suggesting them to me based on items I have in the cart, have already bought or even looked at. These (usually on target) suggestions are generated from a vast database of the browsing and purchasing records of myself and the other 76 million unique visitors last month.   The difference is data. Online retailers have an easier time collecting and storing customer data. Most brick and mortar retailers have been slow to collect or utilize transactional data, which is instrumental in improving stores’ customer experience.

It is evident that technology will play a key roll in helping retailers “engage” their customers. RFID controlled inventory and smart shopping carts could perform the same suggestive functions by identifying items in your cart and making suggestions based on prior customers’ cartloads. To fully leverage transactional information retailers must also know who you are, another task Internet retailers have no trouble with. Once the customer is identified, Retail 2.0 should include social media interaction as well as purchase driven targeted emails. Only time will tell what other innovations brick and mortar retailers will create to slow the market share loss to online vendors.

Positive Retail Comp Sales – A Good Sign? It is All Relative

Published on February 12, 2010 in Ed Borden. 1 Comment Tags: , , , , , , , , , .

Ed Borden, Pitney Bowes Business Insight

The monthly reports of retail year-over-year comp (comparable sales) is often viewed a strong sign of the health of retailers; however, the recent positive gains are being plotted against the sales performance of 2009 — not a banner year for retail sales. While the January-over-January gain of 4.7% is an encouraging sign that the industry is recovering, the sales remain significantly lower than the volumes of even two years. As quoted from blog article Retail Sales Advance the “Year-over-year numbers, though, often tell you as much about conditions a year ago as they say about current conditions.”

Like the Retail Sales Advance article discusses, PBBI has also directly witnessed through our retail and restaurant client relationships that change sales comp numbers without historic context can be misleading. Moreover, the shape and size of this retail recovery is not being share equally among all retailers or even amongst all retailers in the same retail specialties (e.g., home improvement, electronics, and apparel).

The graphs below depict the national historic trends in total retail sales, and consumer confidence and sentiment. Naturally there is a link between the consumers’ spending and the consumers’ feelings towards spending — the peaks and valleys generally follow the same trend. Even though none of the information provided in the charts is all that new, the graphical representation of this information clearly shows just how hard this recession has affected retailers. So when you hear great news about the retail sales recovery, just know it is all relative.

US Retail Sales

US Retail Sales

Consumer Confidence and Sentiment

Consumer Confidence and Sentiment

Year-Over-Year Change in Retail Sales

Year-Over-Year Change in Retail Sales

No Need for Discounts? Let them eat Lobster!

Published on December 10, 2009 in Eric Steckling. 0 Comments Tags: , , .

Eric Steckling, Pitney Bowes Business Insight

In August 2009 Sarah Gilbert of WalletPop.com blogged about how “Panera made news by not discounting its bread” (see link) and goes on to lambast the chain for not lowering prices despite an industry trend of discounts, promotions, and new low price offerings.  Even though the economy is in a severe depression, not all retailers and restaurants are feeling the pinch evenly.  Panera’s strategy can be summed up by a quote from CEO Ron Shaich when he said that he’s “focused on the 90% [of Americans] that are still employed”.

The trend of price breaks may be a hasty kneejerk reaction to slipping sales.  Many restaurant operators argue that discounts hurt the bottom line and largely fail to bring more customers in the door.  It’s reasonable to understand why discount sellers are posting modest gains, as previously higher-end consumers downgrade and loyal bargain hunters continue to patronize the low priced purveyors.  Companies such as Walmart, Costco, TJX and McDonalds have all reported increased sales.  Panera’s strength through the recession begs the bigger question; how are some non-discount retailers and restaurants relatively unaffected by this massive economic downturn while others struggle to keep their doors open?

My guess is that there is a reason behind every success. A particular store may have a customer base that is relatively unaffected by job losses, or in an area(s) with a relatively stable economy (Texas), or are benefiting from folding competition.  In turbulent times such as these consumers often change their behavior so quickly that retailers/restaurants do not have time to respond to the trend before the fickle consumer changes their mind.  It is evident that in troubled times with economic factors to numerous to list, that there are winners and losers, with the losers far outnumbering the winners…

Ms. Gilbert predicted that the press around the company’s growth (and lobster offering) “will only affect it negatively.” Panera’s third quarter earnings report prove Sarah’s predictions wrong; a sales increase of 35% over Q3 2008 can hardly be described as “a fluke”.

Some Good Stimulus News

Published on December 9, 2009 in Shawn MacDonald. 0 Comments Tags: , , , .

Shawn MacDonald, Pitney Bowes Business Insight

Pork. The “other” white meat or a “four-letter” word? Merriam-Webster’s Online Dictionary defines as:

1. the fresh or salted flesh of swine when dressed for food
2. government funds, jobs, or favors distributed by politicians to gain political advantage

Meateaters and vegetarians can both agree that the second definition leaves a bad taste in your mouth.

Admittedly, I opposed the government stimulus bill passed earlier this year because it seemed fraught with funding for “pet projects” so legislators could return to their districts and prove how hard they have been working for their constituency. And I do mean “pet” projects such as $2.5 million for a waterfront duck pond park and $200,000 for a dog park in Hercules, California or $16.5 million to save the San Francisco Bay area habitat of the salt marsh harvest mouse. While these may be very worthwhile causes, how many jobs will be created?

However, I have just discovered a stimulus-funded success story that you can sink your teeth into, literally! That’s right, I am talking about food here. As reported by Supermarket News, a 55,000-square-foot Stop & Shop grocery store will be the focal point of Arverne by the Sea, a mixed-use development in the south Queens community of Rockaway Beach. This development will be funded in part by $5.5 million in tax-exempt bonds made possible through the federal stimulus program. This Stop & Shop will not only fill a retail void – an estimated $528 million in consumer spending is lost annually to competing retail centers outside the Rockaways – but could also create upwards of 175 jobs as well.

The once-thriving waterfront community was designated as an Urban Renewal Project in 1964, and is emblematic of the decay within many urban communities throughout the country. The loss of the retail sectors within these communities have long been a challenge for local authorities. Urban consumers do have money to spend, accounting for $122 billion in retail sales in 2005. However, research also indicates a $42 billion “retail gap” still exists within urban communities, the majority of which can be attributed to the lack of supermarkets. To underscore this last point, more than half of the Detroit residents have to travel twice as far to find a grocery store than a fast-food restaurant.

While there are true impediments to closing the retail gap (scarcity of developable land, restrictive zoning, infrastructure, and politics), grocery chains must also overcome some powerful myths associated with doing business in these underserved areas. These myths include the closure of other local businesses, rampant crime, local residents will not get majority of jobs, and the need for special subsidies to ensure survival.

The Great Atlantic & Pacific Tea Company’s (A&P) Pathmark banner embraces inner-city opportunities, and in the early 1990s formed a partnership with the New Community Corporation to develop a 44,000-square-foot supermarket in the Newark, New Jersey Central Ward. Due to years of pent-up demand, this store set sales records on its first day of operation and within 2 years became Pathmark’s most profitable store. Hopefully, Stop & Shop will find similar success at Arverne by the Sea.

The stimulus package could have been another tool used by local authorities to recruit supermarket operators to underserved areas. Given all of the negative press surrounding the stimulus bill, it is comforting to find a truly “stimulating” story among the $787 billion appropriation. No doubt, a lot of “pork” was doled out in the stimulus bill, but did you know that the Pilgrim’s Pride Corporation received $70,000 to deliver 80,000 pounds of frozen chicken during July 2009 creating zero jobs? Now, I gotta “beef” with that!!

Attack Back With Financial Literacy

Published on November 11, 2009 in Brian Diepold. 0 Comments Tags: , , , , , , .

Brian Diepold, Pitney Bowes Business Insight

You couldn’t go ten minutes at BAI Retail Delivery without hearing about – or talking about – NSF fees. It’s natural that it would be a hot topic as it is certainly getting its share of media and congressional attention these days. Richard Davis made a great point that the industry needs to educate Congress and the public that these fees are not necessarily immoral – after all, as he so nicely pointed out, we are providing a service for the consumer and we are charging for that service.  I agree, and we need to take Mr. Davis’ advice that we need to tell the story in a more positive light.

I also think it’s important that we do more to educate our consumers. This economic crisis is very tightly linked to the lack of economic education and financial literacy in our country. We don’t do enough as a society to arm our population with the necessary tools to think about the world the same way we do as bankers, financial advisers, and economists. Not everyone needs to have a passion for these topics, but they certainly need to have a basic understanding in order to manage their personal finances. The national and state councils on economic education do everything they can to support these initiatives for our youth, but we also have an adult population that lacks this knowledge.

Let’s take it upon ourselves to help solve that problem. Banks could generate goodwill by offering simple educational programs at the point of sale. Let’s take 15 minutes to teach a new customer how to use their checking account. This may just allow them to avoid the extra fees down the road, while at the same time allowing you to guide them to being a profitable customer in other ways.

Not only is it good for the customer, but it would have to go a long way to convincing Washington that we are serious about addressing the issue ourselves – without Congress imposing their own solution.

Worst case – you are the only bank in your market that makes this effort. In that case, it should allow you to differentiate your offering and build that goodwill or brand value with the market. It’s a win-win.