Jeff Judy

Jeff's Thoughts - October 17, 2018

Happy Holidays?

As consumers, many of us make it a habit to complain about how shops hurry up holidays. You can buy Halloween cards by the end of August, and it doesn't seem like it is very long after that that decorations for the December holiday season start to fill the stores.

As creditors, however, we already have a keen interest in the end of year holidays. After all, for many retail stores, that stretch between Thanksgiving and New Year's can make or break the store's year. If you are lending money to retail shops, you will want to be thinking ahead to what kind of season this year might bring, about whether your customers in the retail industry are going to do well and be in a strong position to repay you.

The good news? The economy continues a strong performance, and consumers should have money to spend on gifts, decorations, and much more.

Of course, there is the question of how much of that spending will take place in stores and how much will occur on-line. No doubt you have wrestled with that question as part of your credit analysis, especially as you might have some retailers who mainly sell in-store and others who do substantial on-line business.

Still, if as they say, a rising tide lifts all boats, perhaps you see a better season this year for both on-line and in-store sales.

But as I have been discussing in this e-zine over the past couple of months, a good economy can "blow ill" in certain situations. I have already pointed out that effectively full employment is having a considerable impact on the costs and availability of labor.

Now, along comes a blog post from the National Association of Credit Management titled, "Retailers Struggling to Hire for the Holidays." It cites figures from a CNBC report showing that many temporary seasonal positions went unfilled in 2017. Conditions in 2018 will make it even harder to gather the staff needed to deliver satisfactory service, especially in stores.

One expert interviewed by CNBC suggested that "hiring is the main speed bump for the 2018 shopping season."

Once again, the labor situation raises questions to ask of your borrowers. Are they aware of the problem? Are they developing strategies to cope with it? Will they have to reduce the hours they are open during the holidays?

Or will they pay more for labor, in a kind of double whammy. First, competition for seasonal employees could mean they will have to pay more for these temporary staff. Second, many businesses are coping with this situation, in part, by paying permanent employees to work longer hours, meaning paying both a higher base wage and possibly overtime, compared to temporary workers.

There is no one solution to fit every business you extend credit to. But it is important that the retailers in your portfolio have a plan of action. Decorations aside, happy holidays for retailers -- and for their creditors -- will depend on getting an early start on plans for the hiring season.

Check in with your retailers to assess their readiness for what could be another challenging holiday shopping season.