Upcoming Retail Season Seems Shaky (Jeff Hankins Publisher's Note)

by Jeff Hankins  on Monday, Oct. 8, 2012 12:00 am  

Jeff Hankins

The last three months of sales tax collection reports from the Arkansas Department of Finance & Administration remind us that the U.S. economy, which needs a consumer-driven recovery, remains on shaky ground.

We have no shortage of excuses for the lack of retail sales growth: The upcoming presidential and congressional elections that have given everyone a wait-and-see attitude on multiple fronts, high gasoline prices and high electric bills resulting from a very hot summer are chief among them.

All the home refinancing at extraordinarily low interest rates that was expected to free up household disposable income simply hasn't translated to big gains for retailers. I figure that money has gone toward essential expenses as well as escalating health insurance and health care costs.

The first three months of the state's fiscal year show a slight contraction in retail sales instead of what seemed to be a reasonable forecast of a 4 percent increase. While exceptions certainly exist, this indicates a pretty ho-hum situation for retailers, and this has to make them a bit jittery going into the critical fourth quarter.

The consumer shift to online purchases has continued to erode Arkansas' base of retail sales, and thus the state and local sales tax collections. It's a major societal shift, with online retail revenues expected to reach nearly $270 billion in the U.S. by 2015. Arkansas and most other states receive a fraction of the tax collections they would otherwise get from local purchases. Let me be clear that it's often an expense shift - from sales tax expense to shipping expense - and not a cost savings to consumers.

It's refreshing to see how Dillard's Inc. - like Wal-Mart Stores Inc., of course - has embraced the shift in shopping patterns. Investors have rewarded the company with an enormous stock price run-up, with shares trading last week at $73. Central Arkansas is a major beneficiary of the Dillard's online commitment, proof of that being the recent opening of the $42 million, 850,000-SF Internet sales fulfillment center with 350 employees in Maumelle.

Our local retailers remain under tremendous competitive pressures with a one-two punch from national big-box chains and online companies like Amazon. If they are offering commodity, price-sensitive products without strong personal service and a proposition for helping consumers make educated buying decisions, then they will struggle. Fortunately, we have many retailers who are keeping themselves relevant by employing those things and using local media strategies, including social media.

However, the big chains continue to reinvent themselves to remain relevant as well.
Wal-Mart has done the best job of marrying the local store and online store experiences. Electronics stores like Best Buy are struggling, with shoppers checking out gadgets and televisions and then going home to buy the best deal online.

Our neighborhood in west Little Rock has a new Kroger Marketplace, and the differences between it and the older, significantly smaller supermarket are intriguing. First, it actually seems odd to find all the new general merchandise selections at a Kroger, though I didn't feel that way when Wal-Mart added groceries to its product mix.

Kroger's move to provide a huge selection of prepared foods ready for dinner seems like quite a competitive challenge with restaurants, but it likely gives families the feel of "home cooking" without cooking compared with fast-food restaurant drive-throughs. And I'll never understand how these supermarkets can absorb the cost of spoilage they must have from the volume of fresh food they prepare and display.

The retail business is competitive and difficult enough without all the economic factors in play the past four years. Consumer buying habits changed radically with the Internet and continue to change because of mobile devices. Let's hope our local retailers can continue to evolve and remain a strong force for business in Arkansas. n

(Jeff Hankins can be reached via email at JHankins@ABPG.com, followed on Twitter @JeffHankins and connected with at Facebook.com/Jeff.Hankins and Linkedin.com/in/JeffHankins.)



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