For most retailers, the end of the fiscal year, particularly the holiday season, is where store performance and financial results are dependent. But, for the end of the year to be successful, brands need a successful start to the year too, and the first quarter is definitely a launching point for the entire enterprise.
Every single year, retail stores see March and April results fluctuate, sometimes wildly, simply due to the timing of Easter. This year, with a relatively late celebration of Easter and some welcomed warm weather, we are likely to see a more positive trend for the month of April as compared to last year. Based on early month trends, I anticipate April shopper traffic metrics to slip downwards about six percent, an improvement from previous months of over nine percent drops. However, I expect selling metrics to experience positive upward trending results for both conversion and shopper yield (sales per shopper), with lifts of 0.2-0.3 percent and three percent respectively.
Retail’s second quarter, May through July, almost always sees a rather sawtooth performance year-over-year, mainly based on fourth quarter earnings posted in February, with companies responding by realigning strategies and playing musical chairs in the executive suite. Then, of course, there’s the impact of other leading economic indicators, like the price of fuel and its direct influence on travel plans over the coming summer.
The other factor coming out of Q1 is the amount of inventory stock left over, which greatly affects pricing, and subsequently margins, going into Q2. Many companies have become much more prudent with their stock investments through edited assortments and smarter allocation methodologies. Efforts to reduce inventories, increase inventory turn and minimize markdowns will allow retailers to improve margins and merchandise productivity. The prescription is for retailers to take serious measures to increase shopper productivity as store traffic will continue to be in decline mode. I expect traffic for brick-and-mortar stores to trend downward between 7-10 percent for Q2, but initiatives to increase sales per shopper will help minimize the impact on sales. At the very least, Q2 traffic will be an improvement over the holiday season, where traffic fell 9-13 percent.
Back-to-School (BtS) store performance tanked in 2015 – with drops in traffic of 10-11 percent – as consumers began to shift how they shop for BtS. Some traction and stability returned in 2016 for BtS, the combined months of July and August, with declines in traffic ranging from 6-7 percent. For 2017, I anticipate traffic to continue to slip, declining somewhere between 7-9 percent.
In summary, April will post stronger shopper traffic results than current trends, but Q2 will pose further challenges, although generally more positive than Q4 2016 and Q1 2017.
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