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Retailing in Texas: beyond sales forecasts.

Recently, Julian Seeherman, Chairman and CEO of Venture Stores, Inc., told students in my retailing classes at Texas A&M: "Retailing is an exciting business. Most retailers live and die by the fourth quarter operating results. You can have good sales and earnings performance for the first three quarters; but if the numbers aren't there in December, it will not be a good year." As an interested observer and student of retail practice for more than a decade, I knew that Mr. Seeherman's assessment of the importance of the holiday season to the overall financial performance of most retail businesses was accurate, and I appreciated his sharing this information with my students. However, his remarks, coupled in close temporal proximity with the first media requests of the year for holiday sales forecasts, triggered some concerns about such prognostications.

One of my concerns about the annual media barrage of "holiday sales forecasts" and "retail outlooks" is that some retailers may take them seriously and develop unwarranted feelings of euphoria or pessimism about the upcoming season. At best, such reactions can lead to complacency or anxiety. At worst, retailers may allow holiday forecasts to affect their decision making in ways detrimental to their businesses. It is the latter outcome that provokes most of my worries about participating in the forecasting process and prompts me to offer, along with my forecasts, a few caveats.

My retail sales forecast for the fourth quarter of 1992, for the nation as a whole, is somewhere between flat and a 4-5 percent increase over 1991 sales, which were 4-5 percent higher than 1990, a bad year for holiday sales. I expect Texas retailers to fare somewhat better than retail businesses in other parts of the country because: 1) the Texas economy appears to be recovering from the recession more rapidly than the national economy, and 2) I have confidence that all the media attention to the stagnant economy will have less effect on the purchasing behavior of Texas consumers than on that of consumers elsewhere because of our inherent self-reliance and the pervasive attitude that the Texas economy is headed out of a prolonged downturn.

Does my national forecast sound familiar? Of course it does. This is essentially the same forecast we have been receiving from any number of sources for the last several years. Consumer confidence in the economy is low; debt levels are high; big ticket items and luxury products are likely to be hardest hit. Surveys indicate that holiday shoppers plan to spend less this Christmas season and trade down to less expensive, value merchandise. All of these factors portend a good holiday for the large discount retailer and a difficult season for the local retailer.

Remember, though, that these predictions come with caveats. Interpretations of holiday sales forecasts should always be tempered with the knowledge that such projections are, at best, educated guesses. For example, my earlier prediction of a 0-5 percent sales increase for the nation as a whole over the same period last year is based on several sources from the national media and conversations with retailers from different parts of the country. Many of these same sources, coupled with my familiarity with the Texas economy, Texas consumers, and Texas retailers, form the foundation for my sales projection for the Texas market. Keep in mind that forecasts are never facts and should not be interpreted in that manner. Forecasting consumers' shopping and purchasing behavior is a particularly risky undertaking because of the myriad factors influencing our buying decisions. Even the most advanced computer systems armed with sophisticated statistical models and millions of data points cannot produce sales projections worthy of the confidence displayed by many forecasters. Sales forecasts may vary in their degree of informational support, but all are educated guesses. They should be interpreted and acted upon with that understanding.

Successful retailers are always alert to the uncontrollable factors that may influence their businesses. They do not, however, allow such outside influences to dictate their business strategies. Great retailers are as unresponsive to uncontrollable factors in their environment as they are responsive to the needs of their customers. There is absolutely nothing Texas retailers can do, or should do, about holiday sales forecasts regardless of the direction or magnitude of the predictions. Reacting to media reports concerning the state of the economy and the buying moods of consumers in general is not their business. Understanding the buying preferences and needs of their customers, and fulfilling those needs better than other retailers, is their business. Serving customers better will isolate Texas retailers from the ups and downs of consumer buying patterns by making them outlets of first choice regardless of customers' current economic situations or outlooks.

Serving customers better will also improve the long-range prospects for regional and local retailers. Better service will insulate Texas retailers from the price competition that remains as the only competitive weapon available to retailers who have lost sight of the fact that the customers' definition of value includes more than price alone. The customers' definition of value includes a "what I get" component as well as a "what I pay" component. The customer's preferred retailer will be the one who most successfully balances these two elements to achieve customer satisfaction. Too many retail businesses have tended to focus on the "what I pay" side of the equation by engaging in protracted price competition that is often ruinous, particularly for small business retail establishments. For this type of retail business (and the majority of Texas retail businesses fit into the small business category), price competition can never result in a sustainable competitive advantage. Price is the easiest element of the strategic mix to duplicate, and larger competitors have too much purchasing leverage with suppliers and a cost structure too low for price to be an effective marketing tool for most Texas retailers.

Smaller retail businesses can, however, compete very well on the "what I get" side of the value equation. In fact, local and regional retail businesses have a distinct competitive advantage over large national competitors in their ability to identify and understand the individual needs of target customers and to readily adapt the retail offering to cater to those needs. Customers will pay more for the "personality fit" that the local retailer is ideally positioned to provide.

From the local clothier who knows the names, sizes, and preferences of all of her customers to the jeweler who understands the desires of his patrons and contacts them with product ideas in advance of family birthdays, graduations, and other important events to the hardware salesperson who knows and understands the building prowess of local "do-it-yourselfers," Texas communities are filled with successful retail businesses operating on the "what I get" side of the customers' value equation. Their customers are treated like individuals and made to feel important. Their customers come back again and again whenever the need for products and services arises.

Their customers' loyalty, earned and cultivated through personal relationships, makes national sales and earnings forecasts irrelevant for these Texas retailers.

Larry G. Gresham Associate Professor of Marketing and Director, Center for Teaching Excellence Texas A&M University
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Author:Gresham, Larry G.
Publication:Texas Business Review
Article Type:Industry Overview
Date:Dec 1, 1992
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