In a session entitled "The Sky Has Fallen: Now What?" held Tuesday at the NRF convention, J.C. Penney CEO Myron "Mike" Ullman III, along with two financial experts, offered a dismal assessment of the current environment. The primary advice: hoard cash.
"I wouldn't worry about anything else for the next year," said Peter Solomon, founder and chairman of Peter J. Solomon Co. "You are selling on a survival basis and you have to survive... Don't worry about investing and if you survive, you'll somehow figure it out a year from now."
Mark Zandi, chief economist at Moody's Economy.com, said that while the last recession was an income-statement recession, this one is both an income-statement and balance-sheet recession. The difference is that the steep losses in housing and stockholding values have created a double-whammy, according to Mr. Zandi, and it is expected to play a permanent "psychological" role in the way people decide what to buy. He also noted a new trend toward conservative buying among younger people that may persist even after the recession is over.
"This is an end of a long run," added Mr. Solomon, who noted that for years easy credit allowed stores to keep expanding as consumers kept spending. Now, he said, consumer demand and retail have "caught up with each other."
At the conclusion of the presentation, each panelist was asked when he thought the economy might turn and what retailers should do to ride out the period.
Mr. Ullman said he expected 2009 to be "a tough year all year" with growth likely to resume again in 2010. Echoing other panelists, Mr. Ullman stressed the importance of preserving cash by reducing capital expenditures and better utilization of inventories. Said Mr. Ullman, "The extent that you can order correctly in advance, or move your inventory through the system more expeditiously with shorter lead times..those are things that are going to help you."
Mr. Solomon said it's difficult to predict a turn, noting that 2009 "is going to be a nightmare." While leadership overall will be critical, he underscored the importance of surviving the shakeout.
"The retailers that go bankrupt today are going to be liquidated," said Mr. Solomon. "And while they're going to be liquidated for the technical reason that there's no financing, they're going to be eliminated because the demand isn't there for retail space in America and it's not going to be. So if you're still in business, you're already in better shape."
Said Mr. Zandi, "The next six months are going to be very painful. The next six months after that are just going to be painful, and 2010 is going to be uncomfortable. So in the end, 2009 will be a matter of survival, and I would use 2010 to prepare for opportunities in 2011."
Discussion Questions: What is your view of the advice given by Mike Ullman, Mark Zandi and Peter Solomon at NRF? What advice do you have for retailers to navigate the next two or three years?