Has Retail Momentum Stalled?

They’re one of the hot toys of the day—so-called surprise eggs that are smaller toys packed into a larger ones. Millions have watched them unwrapped on YouTube, waiting for the mystery inside each. All of which is not too unlike the kind of world retail leaders are facing these days.

Thanks to the government shutdown, December sales reports only arrived this week, a month later than normal. Much like the eggs, the delay created a sort of mystery around how retail sales closed out the year, leaving leaders operating somewhat blindly. “There are still a lot of unknowns,” says Craig Rowley, a senior client partner with Korn Ferry who specializes in retail.

To be sure, there were some indications. Economists expect sales growth to slow down, with projections of a rise of 0.02% month over month. But sales actually fell 1.2%, according to the Commerce Department, the biggest monthly drop in more than a decade. Despite the holiday season getting off to a strong start, stocks tumbled as the month went on, first on trade concerns and then as a result of the shutdown. Predications for an impending recession further put consumers and investors on edge.

At the same time, however, unemployment has remained at historic lows, and wages are starting to inch up. Markets rebounded from their end-of-year doldrums in January, and even with projections for a slowdown this year, the economy is still expected to grow. The volatility over the last two months, along with the delayed December sales figures, has implications for how retail leaders approach budgeting and planning for not just the current quarter, but also for the rest of the year.

“Excess inventory from the fourth quarter foreshadows first-quarter earnings,” says Denise Kramp, senior client partner and retail sector leader at Korn Ferry. “This, combined with talks of a recession, will impact any price increases and revised plans to increase sales and profitability.”

Many retailers raised prices in 2018 to offset higher costs from tariffs resulting from the trade standoff between the United States and China. According to news reports, those increases are expected to continue this year. As Rowley notes, however, getting to a price that still feels reasonable to the consumer is no easy feat.

“Consumers get that everyone has to raise prices because of tariffs, but they only have so much money in their wallets,” he says, adding that retailers have to be able to adjust very quickly to signs of price sensitivity.

Better than relying on price increases, Rowley says retailers, particularly traditional ones, need to continue to show agility in using digital technology to better target and create personalized experiences for consumers. “Your most loyal customers are more willing to pay full price when a product is refreshed,” says Rowley. Connecting with them and better understanding their needs is the best way to keep the momentum going in 2019, he says.