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It doesn’t come as a surprise that the biggest question we’ve been asked over the past few days relate to the magnitude and sustainability of retail sales growth.  

Was it a good holiday? Relative to expectations, it probably was. But what we do not know (because retail CFOs have not said so…) is how much discounting needed to be done in order to drive the sales. We’ll find that out by mid-late Jan after everyone has all their double-secret one-on-ones with retail CFO/CEOs at the ICR conference.

We can talk about weather, deferred wardrobe building, a marginal pick-up in men’s, tax stimulus, change in unemployment, or even portfolio dressing and tax-loss selling.  But the reality is that an attempt to quantify the mixture of these factors – along with rapid changes in global macro cross currents -- over such a short duration misses the bigger point.

That is – by far – when the consumption gap between spending and COGS starts to squeeze the supply chain, and therefore margins. We’ve been all over this for the past few months, but consider the milestones.

  1. Black Friday holiday sales. DONE
  2. POS sales receipts from third party vendors: NPD, Credit card companies, etc…  DONE.
  3. (Note that the earlier milestones have everything to do with top line, and nada as it relates to margins.
  4. December Sales calls: Thurs Jan 3. This will be the first glimpse at how December shaped up.
  5. ICR Conference: Jan 11th – 13th. This is the mother of all conferences where buy-side and sell-side alike can pummel over a hundred management teams for incremental info.
  6. Jan 31: Retail calendar ends.
  7. Late Feb – reporting season with first glimpse of downwards revisions.
  8. March-May: finally selling goods made with higher-priced cotton.

Check out our SIGMA below. If you don’t understand it, please ask us. This is a VERY important one as EVERY metric on that chart (Sales/Inventory Spread, GM%, SG&A Leverage, Capex) is heading in the wrong direction.

The punchline is that we’ve just seen a definitive turn down into the quadrant whereby retailers need to be VERY smart about planning inventory and sales campaigns, or simply hold their breath and pray that the consumer shows up.

There’s going to be plenty of pin action in the first half of 2011.

Retail: Asking the Wrong Questions - Industry SIGMA Q3 2010 12 10