The consumer reaction is to continue to buy only necessities and not discretionary goods. As retail bankruptcies continue to get filed, those retailers that do sell products are responding by discounting their summer goods, even though their stock levels are lower than last year – at some major retailers they are anywhere from 10% – 20% lower. Many of these stores continue to be at risk of failure.

It’s clear that retailers are going to have to continue to re-tool and reposition their businesses, to focus on offering real value and uniqueness and – most importantly – focus on what their customers want! They also need to be really smart about their purchases and inventory levels.

The recession is leading to a new approach to how we shop and eat. Consumers will be wearing clothes more before having them cleaned and repairing them rather than replacing them. Women will be buying fewer brands of cosmetics. Eateries that don’t offer excellent value will find themselves empty at dinnertime. The face of retail in the US is going to look different a year or two from now – and not only because many of the familiar faces won’t be here anymore:

 Many retailers, from supermarkets and drug stores to high end specialty department stores, are cutting back significantly on the products and resources they carry. This could potentially give them more space for private label, which can improve margins. But it’s not foolproof. Customers who don’t find what they’re looking for may shop for it elsewhere.
 Some single-brand retailers are discovering they need to look outside their own brands for ways to drive customer traffic. Nine West bringing in “New Balance for Nine West” athletic shoes is a case in point.
 Other retailers are merging to find economies of scale: Syms and Filene’s Basement and Dress Barn and Tween Brands are two examples.
 Better/luxury retailers, such as Coach are reinventing themselves with new, lesser expensive product lines. Coach’s new “Poppy” line is substantially less expensive than it’s regular lined and aimed directly at younger, aspirational shoppers.

The good news is that, though consumer confidence was down in June, it was still higher than any month this year, except May. The recession, like so many economists are telling us, is moving towards a close by year end. I’m just not sure anybody is going to really notice. With job losses and bankruptcies continuing into next year, it’s going to be a slow climb back.

This, as both department stores and specialty stores will add square footage this year (1.2% for department stores; 1.9% for specialty stores). (Has no one told them there is already too much retail space?)

Will these SG&A cuts, no matter how deep, be enough to do the trick? Even if retailers continue to cut, will it make the needed difference? On the top line, sales are still declining each month for most chain stores. Though the recession is likely to come to an end in a few months, I’m not sure we’ll even be aware of it. Lay-offs in every industry will continue, credit will remain tight and consumers, if you can call them that, will be busy saving to make up the half of their net worth which they’ve lost. Will they really be making beelines for the stores anytime soon? I doubt it.

To me it’s looking clear that 2010 will be when it’s time for many retailers to “pay the piper” and start closing more stores. It’ll continue to be a tough year for retailers, as well as for shopping center developers/owners as these stores close. Lowered sales productivity for those that remain open will continue to affect NOI for shopping center ownership and exacerbate the general situation.

Despite this glum news, there is some good news. The coming year(s) will be a time of creativity in which retailers find out how to make a go of it in this brave new world. They will work more closely with suppliers (who need to do some cost cutting of their own) to sharpen prices and give consumers what they want and need: value. New formats will emerge and that will signal growth and good things to come for retailers, shopping center developers/owners and for consumers.

 The bad news is that, even as the recession draws to a close, there’s still a lot of pain ahead for each of those groups.