What Retail Earnings Releases Really Mean

This is a big week in the US retail world. The all-important holiday quarter sales and profit results will be reported for a whole host of major retailers. Macy’s, Walmart, Home Depot, Kohl’s, JC Penny’s, Foot Locker, The Gap and Nordstrom’s all report this week. Many more including Walt Disney and CVS also report as well as retail corporations in the UK and globally.

Some will be positive and some will be not so good. But what does it all really mean? Well, several things, but let’s just talk about two of the most important. First, the overall results are a good indicator of the overall economic health of the nation and the world. Second, the results are a direct and indirect result of each company’s effectiveness.

A Global Indicator 

As a global indicator of economic health and wellbeing, retail results are the closest in real time to the community of consumers and workers. And, importantly, the most reactive to what’s going on in people’s lives. Things like manufacturing and construction have much longer lead times. Automobiles in production now and for the next several months are not a reaction to the car sales this week. However, if there is a lot of uncertainty, people may not go out for this week’s promotions at Macy’s.

Apartment buildings and office shopping centers under construction now are not the result of whatever is happening this week and won’t change direction for months in the future. If people feel pinched, they are likely not to get that new pair of shoes or kid’s play set for the yard. Reaction at retail is in real time.

Individual Results

Publicly traded retail companies are necessarily focused on the last quarter’s results. But those results are not the result just of the events of the last quarter. They are the results of a way of doing business over a period of time and how well they have been executing The Five Laws of Retail.

1. People First. Retailing is “people intensive”. It takes a lot of individuals to run a store and lots of customers are needed to be successful. To be successful, the company needs to put people first in a genuine and authentic way. This is difficult to quantify, but if it’s neglected, quarterly results will disappoint.

2. Turn is Magic. Whatever the company is selling, it must sell the holiday goods in holiday and bring in new inventory for spring right after. You can’t have old stock around. It’s like the fruit market. No old bruised bananas.

3. It’s Always the Product. If the product is not right, there isn’t anything in the world that will make it successful. No marketing, no price reductions, nothing.

4. Retail Price, not Cost. The customer doesn’t know or care what the retailer paid as a cost for the items for sale. The only thing that matters is what value it has to the potential buyer.

5. Protect the Downside. If the sales aren’t there for the holiday season, as will undoubtedly be the case for some of the retailers reporting earnings this week, then what? Now is not the time for them to think about it. Hopefully, they will have had contingency plans in place before the season ended.

So, as we listen to holiday and year-end results for retailers big and small, successes will mean they did these things right. If earnings are disappointing, it means they violated one or more of these laws.

Learn more about retail in my soon-to-be-released book, The Five Laws of Retail From di Medicis to Macy’s. Sign up to follow my blogs and to be notified when the book is available.