Is Q2 2018 A Sign Of Good Things To Come For Retailers…Or Just A Happy Blip?
Q2 was a solid three months for retail, with major players such as Walmart, Target and TJX posting some of the strongest results. The National Retail Federation (NRF) was vastly encouraged by the recent numbers, boosting its 2018 sales growth forecast to a minimum of 4.5% after initially predicting that retail sales would climb 3.8% to 4.4%.
But just as people were overly eager to declare a “retail apocalypse” in 2017, it might be too early to presume that the next few quarters will go as smoothly. Caution is particularly indicated with macroeconomic factors such as front-loaded tax cuts and the potential for more tariffs — both of which encourage higher spending now instead of later.
The RTP team discusses whether the Q2 results show that the industry is in the clear from last year’s struggles, or if the quarter is just an example of the biggest performing the best.
Debbie Hauss, Editor-in-Chief: Being the cynic I am, I wouldn’t want to be overly optimistic about how the rest of 2018 will play out, particularly considering all the global controversy around tariffs and the U.S. relationship with other countries. I do continue to agree with Deloitte’s Kasey Lobaugh, who shared his insights on the “Retail Bifurcation” during the 2018 Retail Innovation Conference. The high-end/luxury brands and the low-end/dollar store type retailers will continue to flourish, while companies targeting more middle-income consumers will suffer. It’s a value vs. experience game that will weed out weaker, less progressive companies. I think shoppers who identify as middle class will be wary of over-spending during the holidays and will focus more on necessities during the gift-giving time frame.
Adam Blair, Executive Editor: Unfortunately, one good quarter does not necessarily signal that it’s time to start singing “Happy Days Are Here Again.” Any number of macroeconomic developments could cause retail’s revival to sputter. For one, the continuation of largely pointless trade wars sparked by the imposition of tariffs could raise the price of a wide range of consumer goods. That would shift household budgets from high-margin luxuries to the necessities of food, fuel and health care. Additionally, while unemployment remains low, so does wage growth, meaning consumers’ actual purchasing power remains limited. It’s also worth noting, as my colleague Glenn Taylor did in his story, that the retailers doing the best financially are the ones making significant (and smart) investments in their stores, e-Commerce operations and customer experiences. At the risk of being labeled Peter Pessimist, I’ll keep the champagne corked until I see the results from holiday 2018.
Glenn Taylor, Senior Editor: For once, it’s great to see the positivity, since many of the retailers highlighted here have clearly made significant investments in their business. These retailers weren’t relying on half-measures dedicated to shoring up one side of the enterprise, tactics that became too common as Amazon jumped ahead of the pack. Covering retail in 2017 often felt grim, so a quarter chock-full of positive news was going to get highlighted by media outlets regardless. With that said I have faith that those retailers succeeding now will keep the good momentum through the holiday season. It’s going to come down to the identity established via their own investments. Steven Dennis noted at RIC18 that physical retailers that haven’t “picked a side” — either price/convenience/assortment or experience — were bound to suffer in the middle and “end up not really good at anything.” The retailers that win will continue to acknowledge the need to think about their stores as assets, all while introducing more AI-driven personalization across the business.
Bryan Wassel, Associate Editor: While one good quarter isn’t necessarily a sign of a complete recovery, it may be proof that reports of brick-and-mortar’s death were greatly exaggerated. Proclamations of the Great Retailpocalypse may have been overblown to begin with: e-Commerce pure plays are finding success by opening storefronts, and 81% of 13- to 16-year-olds prefer shopping in-store over other methods. What’s undeniable is that the fundamentals of physical retailing are changing – technology’s role continues to expand, and no one can afford to ignore their e-Commerce operations. The success of the largest retailers may be a sign of their technological investments paying off as they adapt to the desires of the modern consumer, while still-struggling retailers need to rethink their overall strategies. The entire industry isn’t in the same boat, and this shift will no doubt have its winners and losers, which will play out in the financial results.