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Why Retailers Are Stuck in a 'Stockdale Economy'

Monday, 31 Oct 2011 | 12:18 PM ET
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Consumers have been giving in to their desire to feel good with retail therapy. Their willingness to open their wallets wider has helped push earnings up and retailers to recent 52-week highs.

But, the increased activity may be just a fad.

The newest economic data shows consumers have been taking home less and digging into their savings. Consumer confidence is also is at its worst level since the height of the recession in March 2009.

There is concern the dilemma could stunt growth for retailers before the holiday season even starts.

PRGX Global Retail Managing Director Steve Riordan is a former merchandiser at Federated Department Stores and Pier 1. He believes retailers are stuck in a "Stockdale Economy." According to Riordan, they must confront the brutal facts surrounding them while trying to remain hopeful.

"Retailers have been held hostage by this economy. It's long and dragging out and they don't have much control over it," said Riordan. "Month-by-month and throughout the year, there is this prevailing view that things are getting better. But, then a few weeks after that the outlook becomes not as good as they thought."

Retailers have been banking on their survival instincts for the past few years to weather the tough environment. They include keeping inventory levels low, using less expensive fabrics or marking down merchandise more aggressively.

The industry is aware it can't go back to the future and party like it’s 1999. Riordan said the situation facing retailers is the polar opposite of what business was like in the 1980s and 1990s —which was an unprecedented time for consumer spending.

He expects it will take years for retailers to free themselves from the so-called "Stockdale Economy."

"We are never in our professional careers going to see historically low inflation, low interest rates and high credit availability to consumers at the same time. We may get some again, but not all these factors. It is virtually impossible," said Riordan.



Stephanie is Squawk Box producer. Follow her on twitter @StephLandsman

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