Consumer sales will remain sluggish

HE YEAR 1986 shotrld be cxtrenrell interestittg f'or thc naticlnal economy in general and l'or 0ur industry in particular

Thc cconomic lactors of slorv growth u'ith t'lat and, early on, lorrer intcrcst rates arc exanrplcs of' the contradictions currently bcittg notcd in the cconoln\'. L orl\Lln)er sales, ils evidenced by thc record 3.3rb C)ctober, 1985, dcclinc, *rll contir.rue their sluggish pattcrn as real irtcctt.t.tc growth sloris. Rccctit I'arlill ittconrc growth rras primarill' dcrircd l'rorn an additional lia-ee carrier cntcring thc rvork force, rathcr than highcr individual earnings. .\s thc cntpltrrrttcnt 1'rielttrc flattens, household incomes tcnd tiot to erpand sufliciently' to absorb the prcsence of nerv retail outlets. Thcrcl'ore erpansion must primarily be achiered at the expense of cxisting nrarket participants.

The primary industry econontic l'actors facing lumber and building nratcrial retailers nexl !'ear rvould appear to be flat housing starts for the contractor supply'scgment and the beginning of thc nratLrration cy'cle for thc honrc improlement retailing segrncnt. A. u .trh-rcgrttcrtt. home improvenrent retailing *ould appear to bc accelerating toriarcl rnaturitl' as Builders Sqrrarc, Horne CIub, N'lr. How, Honre l)cpot and Home Quarter. roll orrt t hcir a!!tcrrir r crpatl.ion plans. Fclr thenr oiclcnce of this rush to nraturity is tlie earll' on entr""- and erit ot' Bori ate r and Homecrafter \\ arcnouses.

In this enrironnrent, productivity and cost controls, both difficult achicrcmcnts in a tast grorvth mode, bccclnrc c\cn more critical to those etrrrrptrrric' rr lrie lr rr ill hcerlnte national conccrns in thc nert several years.

Productir itf in our industry is hcarill' ske*ed to invcntory productir.ity and carn and turn managcmcnt skills are magnilicd in a tight economy. Produetivity inereu'e' ltre most readily achier ed r iu irttpror cd systems which reduce thc cost of processing merchandise and paperwork and provide quantified reports ot' relative productivity' rates lor stttall segments of the inr,'er.rtor1'. ln other words, today's merchant ntust be ,.'rn,.prn.', 1 rr ith thc .rodue tir itf tlf t'h:rnrrners as opposed to prior concerns of the hardriare department.

Thc nranufacturing side of the industr) nrust be prodded to incorporate fea{ures such as UPC coding on the nrcrchandise to further facili-

Story at a Glance

Economic factors are contradictory...household incomes cannot support new retail outlets...aggressive expansions will push out some retailers... earnings growth will come from better management of in. ventory and employees.

tate irnproved productirity. \\'ith the inl'orrnation cxplclsion in our industry, rnanufacturers rvill be choscn on the basis of on tinrc shipping and older fill riites as c'lpposed to pricc and in-storc service.

Emplol'ee productiritf is the other obvious critical factor. Approxirnatelr l0ro of nrost oper?ting o\crheads is pa1'roll related. The successful operator uill managc thcse payroll dollars to optimize customer scrvlce ri hile pror iding satisfactory rcturns of capital. \\'ith maturation upon us, the succcssful rnid-to-long term operator *ill bcnciit from a hase of loyal customers which price alone cannot provide.

Salcs pcr cn'rployee and gross margin dollar per employee measurerncnts should bccome as familiar to thc succcssful operator as prel'ious standards such as sales per square lo()l and avurflgc dollar transaction.

On the other hand, manufacturers must also movc tolvard maximizing tcst standards to become or remaln a low cost producer in toda-v's world market.

In closirrg, I l'eel tlre ltontc iniprorement segment uill continue to expand at an approxinrate l0o,o annual rate for the next several 1'ears. Retailing in general rvill not erperience real gro*th of any significant size and I therefore feel that retail earnings in gcneral will be flat. The individual market shares of 1985 do not comparc *ith those of 1980 and they will continue to shift in 1986.

Earnings growth must therefore corne from better management of irrr gn1sr1 and emplovees, not incrcascd salcs per unit.