Thursday, December 23, 2010

Analysts Hit the Mall

The Wall Street Journal published an article today about Wall Street analysts visiting malls to examine what's happening at the store level at major retailers such as The Gap, J Crew, Abercrombie and Fitch, and Hollister. For instance, the article quotes analysts who cite empty shelves as signs that items must be moving briskly, and that excess inventory must not be a problem.

On the one hand, I find the "feet on the street" approach by these analysts to be quite useful and interesting. They should be out there examining what's actually happening in the stores. On the other hand, the approach worries me a bit. One could easily jump to the wrong conclusions based on the unscientific observation of a few stores in selected locations. For example, do empty shelves mean that the store has some hot-selling items, or that its inventory management system has key flaws which left it stocked out of items which should be on the shelf? Do long lines suggest brisk sales or poor customer service?

I find myself thinking and analyzing as I walk through retailers as well. I'm always watching, for instance, for signs of exceptional or poor customer service. I tell my students that they can internalize many of the lessons from their business education by becoming more observant and analytical as they shop. The key, however, is to look for patterns over time and across locations, not to draw sweeping generalizations based on one instance in one particular place. Moreover, one has to consider multiple explanations for the same observed phenomenon, i.e. what precisely does an empty shelf mean?

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