How can retailers possibly cope?
Actually, it is the sentiments of consumers rather than the consumers themselves that are fickle, and thus hard to analyse and forecast.
Much consumer sentiment is the product of newspaper, television, radio and magazines headlines, stories and innate editorial biases. Accordingly, they can and do, in many instances, change daily.
This is a reality strikingly evident in the discourse between, opinions and expressed buying intentions of participants in focus groups.
One is left to conclude that consumer sentiments, to a large extent, are an “effect” rather than a “causal” factor, which must be considered in the planning of the marketing, advertising, promotions, product lines, inventory and financial forecasting of many retail businesses.
Over-riding consumer sentiment can be materially and significantly affected by the public statements of politicians, bankers and other spheres of influence.
Declarations by high profile retail industry spokespersons about price deflation, sales leakages to internet on-line retail websites and entities, rampant price discounting and a general sense of lack of consumer loyalty can influence prevailing sentiments. More disturbing, it can awaken, educate and influence consumers to consider and try competitors, substitutes and alternatives as means to satisfy their needs, wants and desires.
Compounding the issue is the lack of uniformity in such expressions, driven largely by short-term, often conflicting, self-interest.
Some industry leaders even get very sentimental about the whole issue, to their and businesses' detriments.
Expectations of economists typically exceed the disciplines and the practitioners' capacities, training and abilities. To expect economists to accurately forecast within .1% interest rates 12 – 24 months hence, is unreasonable and, above all else, their attempts to do so, unbelievable. So too are such forecasts.
Many economists determine their projections on established or unique modelling. Retail association spokespersons use or refer to similar templates and concepts.
Many business leaders share a general consensus that economic forecasts are inevitably wrong. The major point of disagreement is just how wrong the economists are in their forecasts.
Interestingly, a common deficiency of economic modelling is the absence of consideration of and tolerance for the role and influence of consumer sentiment.
It is estimated that the sentiment of consumers is a variable that can influence demand, and thus sales, profits and dividends, by up to 25% of standard economic forecast modelling.
Hence, it seems that consumer sentiment is something that business people, retailers in particular, cannot do with or without.
Consumer sentiment is a cruel, fickle master. It is also a rewarding but not compliant servant.
Sentiment is a filter through which consumer perceptions are developed, established and, over the short-term, sustained.
It can and does impede and block out communication. Moreover, it is often a pre-emptive factor which determines whether purchase, investment or consumption will be contemplated. That is a powerful variable which will directly and, most importantly, indirectly impact on spending patterns. Care must be taken about the capacity for mass consumer sentiments to change and to do so rapidly.
One need not look beyond the fortunes of retail brands in the “beach culture” sector of retailing to register a salutary lesson.
Consumer sentiments, and their importance to all businesses underscore the importance of a principle enunciated in my co-authored book on Australian entrepreneurs which was titled, The Jindalee Factor. That was
“Plan long. Manage short”
Don't attempt to plan in anticipation of sentiments or manage oneself around them. Consider, respect and allow for them, with appreciable tolerance for variability.
THE YEAR AHEAD
If one is not able to accurately and consistently forecast mass media headlines 7, 14 or 30 days ahead, then no attempt should be made to project consumer sentiments or to believe that concise sales and profit totals can be documented and “banked” in advance, based on those premises.
Likewise, economists' statistics about the future should be studied carefully and then, in most instances, be summarily dismissed. Economics is the discipline of the allocation of scarce resources, not of declaring within .1%, the official interest rates and the All Ordinaries Index, twelve months hence.
Accept the fact that the headwinds which has been spoken and written about so freely since the onset of the Global Financial Crisis (GFC) in August 2008 will persist during 2012. They will be fluky, inconsistent in direction and in intensity and they will be compounded by the changing tides of consumer sentiments.
In short, astutely set course for the finish-line, but be flexible, malleable and responsive. Recognise the nature, role, importance of and influence of consumer sentiments. Don't attempt to control such emotions. Rather, reach out, connect, and interact with consumers and at all times endeavour to guide (but not unjustifiably talk-up) their sentiments.
If one possesses a high tolerance of risk and has a “business auto-pilot”, then at least push the reset button!