If there’s one thing that the recent news makes clear, it’s that no one is really sure when the sputtering economic recovery will gain some real traction. We have heard all kinds of scary predictions about what would happen if the United States’ credit rating was downgraded, but it happened anyway, and…even as investors were shedding their positions in stocks, they were buying U.S. treasury bonds (the very thing that was just downgraded). And by the end of a turbulent week, on 8/12 the Dow Jones was only down 1.5% for the week, even after four wild 400-point swings in five days.

Other information flies in the face of all the politicized hyperbole on the 24-7 cable news channels. For July, the U.S. Department of Commerce reported that retail sales (excluding cars and gasoline) grew 0.5% — the best report since March. According to acting Commerce Secretary Dr. Rebecca Blank, “consumer spending reflects the confidence of the American people, and despite recent economic turbulence, we’re still seeing widespread growth in spending. ” Other data for July showed that layoffs are down and employers are adding new jobs, albeit slowly.

The National Retail Federation recently reported: “Import cargo volume at the nation’s major retail container ports will remain below last year’s levels for the remainder of the summer before seeing year-over-year gains again this fall as retailers begin to stock up for the holiday season… NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. ‘The economy continues to face challenges, but job growth has been steady and retailers have been adding jobs themselves as sales improve. Cargo figures for this fall clearly show that retailers are expecting a healthy holiday season. “

Last but not least, on July 27 VISA Chairman and CEO Joseph Saunders stated, “Visa delivered another quarter of strong financial and operational performance as we benefitted
from growth in global payments volume, and solid cross border and processed transaction growth. ” This growth was fueled by a 13% increase in volume over the prior year.

What’s a person to think? Given the choice of (A) the Fox News vs. MSNBC mud-wrestling competition or (B) the numbers, the smart money is on (B) the numbers. At the same time, one would have to be blind not to see what governmental dysfunction (amplified by the aforementioned “news ” outlets) is doing to consumer confidence. On Friday 8/12, the monthly Thompson Reuters/University of Michigan Consumer Confidence Index for July was released, and it indicates a precipitous drop in how people feel about the economy.

Back to Retail

In the world of retail, 2^nd quarter results are rolling in, and for some companies the news was very good indeed. Examples:

• Online giant Amazon.com recently reported year-over-year growth of 51% (48% growth in the U.S.). In a testament to the power of the words free shipping, the company credited strong growth in the EU to the Amazon Prime program (free shipping in exchange for a subscription fee).
• In the U.S., hi-end retailer Nordstrom reported great results for Q2, with a net income increase of 20 percent. The company also boosted its full-year profit outlook. In the quarterly analyst call, company president Blake Nordstrom explained, “our Anniversary Sale was a significant factor in both our July and second quarter results. We’re pleased to report that this year’s event was the best yet in the history of our company. The Anniversary Sale …offer(s) the customer preseason savings on new merchandise. After the event, everything goes back to regular price. Over the years, Anniversary has gained quite a following. Our customers love it because they know they can get fresh, new merchandise at considerable savings…. One area we focused on that we believe our customers were particularly receptive to was the Early Access event that benefits Fashion Rewards customers. “
• Meanwhile, Costco Wholesale posted a comparable store sales increase of 10% in July.

Other markets show similar indications of resiliency.

• In the UK, June retail sales were 4% over June 2010, with a modest 0.3% rise over May.
• In Japan, retail sales rose 1.1% in June compared to June 2010, even in the wake of the devastating earthquake earlier this year.
• Fossil, the fashion accessory company, reported a Q2 sales increase of 35% that also represented the fifth consecutive quarter of at least 25% top line growth (Q2’s number included a 22% increase in comp store sales, and a 20% lift in e-commerce revenue). A big part of that company’s growth is being fueled by new business in Asia Pacific markets Japan, China, and Korea.

What’s the Deal?

Back in early 2010, RSR partner Paula Rosenblum coined the phrase frugality fatigue to explain some early signs in our research that consumers were coming out of the shadows to consume again. But in 2009 our studies showed that retail customer had become very deal-driven. At the beginning of the recession, Walmart’s then-CEO Lee Scott declared that, “This is Wal-Mart time…this is the kind of environment that Sam Walton built this company for. “ Indeed, in November 2009, the New York Times reported: “After posting results that showed it was benefiting more than any other American retailer from the recession, Wal-Mart Stores proffered some New Year’s resolutions: Hang onto its millions of new customers for the long haul, and widen its influence on U.S. issues like the environment, energy and health care. “

By the beginning of this year, the world’s largest retailer was struggling to find ways to keep the new customers that had traded down during the height of the recession. Frugality fatigue is real.

What RSR has seen in its more recent studies is a return to a more complex understanding of value. While its true that retailers have to work harder to get consumers to buy, consumers have upgraded their value equation, expecting quality, service, and relevance to go along with a good price and high availability. And in the current mobile always-on information environment, they have really good tools to help them find that value, anywhere on the planet.

Lesson to be Learned

The Nordstrom experience is an interesting one to show both what the consumer values, and how retailers can respond. As the company’s CEO pointed out, their customers don’t want last season’s overstocks, the want “fresh, new merchandise at considerable savings. “ In other words, the value equation is getting more complex, and price alone isn’t the driver even if it’s still very important. But Nordstrom isn’t only in the news because it continues to rack up good earnings. It also has shown a willingness to adapt to new consumer behaviors with integrated channels and mobile POS, leveraging strategic infrastructure investments that were made several years ago. Following suit, Amazon, along with its revenue growth also reported that profits dropped by 8 percent for what it deemed a worthy cause — new investments in technology and warehouses that will help the company expand its brand presence globally. Infrastructure investments fuel growth.

In our travels throughout the industry, RSR is observing that companies are cautiously optimistic about the economy (based on the numbers, not the noise), and the smart ones are laying out the groundwork for better — if different — times ahead. And for those lucky or smart enough to have invested while others were in hiding, now is a time to leapfrog the competition by innovating to find new ways to encourage consumers to buy. After all, consumption is what primes the pump of a consumer-driven economy.