Driving the Recovery
Lost among the headlines that have typically framed discussions of the now years-long “recovery” — the continuing high rates of unemployment and under-employment, a stagnant housing market and ongoing public sector austerity measures — is a bona fide economic success story: The retail industry has delivered 17 consecutive months of sales increases.
To be sure, there were some months where the lift was barely perceptible, but against the current economic backdrop, sustained growth — however modest — stands out.
Consumers’ willingness to spend appears to be tiptoeing ahead. While no one expects shoppers to return to pre-2008 spending levels any time soon, the fact that they’ve begun to loosen their purse strings is an encouraging and welcome sign. Retail, after all, encompasses more than 3.6 million businesses, supports 42 million jobs and generates 18 percent of domestic GDP. Put another way, retail is the single-largest contributor to the nation’s economy, and industry leaders are convinced it will continue to play a vital role in fueling broader economic growth — especially if they can convince legislators to address issues that would free companies to invest, grow and, most importantly, create jobs.
Retail Means Jobs, a $10 million advocacy campaign launched last fall by the National Retail Federation, includes lobbying, grassroots efforts, social media and traditional media outreach. The intent: hammer home the message that retail can be a powerful engine for economic growth and job creation.
“Retail is essentially at the beginning and at the end of the supply chain, and it drives activity throughout,” says NRF president and CEO Matthew Shay. “Any policy objectives that support the retail industry are also going to very effectively support growth and jobs all along that continuum. We want to change outcomes on policy issues that are central and critical to the health of our nation’s economy.”
David French, NRF senior vice president for government relations, insists that the recent uptick in consumer demand needs to be leveraged as the nation pursues economic recovery. “How successful we are at delivering consumer value, bringing customers into our stores and encouraging purchases is going to be the difference between an economy that grows at 2 percent and an economy that grows at a half percent.”
The domino effect
Those sentiments are echoed in corner offices across the nation. Galvanized by the major political win in the years-long fight to curb debit card interchange (or “swipe”) fees, retail CEOs are more intent than ever on making themselves heard by legislators.
“Retailers have the capacity to influence public policy and spark positive outcomes,” says Steve Sadove, chairman and CEO of Saks Inc. “People don’t realize that they can make a difference and that the legislators really do want to hear from business leaders. It’s a part of the lawmaking process, and retailers need to get more involved.”
Sadove is among the cadre of retail CEOs working to educate legislators about the vital role the retail industry can play in job creation if political leaders are willing to meet them halfway on a handful of key issues. He points out that it’s not just about customer-facing jobs inside stores; it’s also support positions like marketing and IT and the pricing and warehouse jobs in retail distribution centers.
“There’s a domino effect that is tied to incremental revenue growth,” Sadove says, “and by convincing Congress to loosen visa restrictions, eliminate trade barriers and reform corporate tax we can get there.”
Among the issues most important to retailers are corporate tax reform and sales tax fairness — leveling the playing field between traditional bricks-and-mortar businesses and pure-play e-retailers.
With rates reaching as high as 35 percent, retailers are among the most heavily taxed industries in the United States. Jim Wright, chairman and CEO of Tractor Supply Company, calls such rates “an unfair burden on the industry. We compete for capital against a wide array of industries that, because of tax loopholes and exemptions, provide a higher after-tax return than retail. To date we have not secured a lot of loopholes, and thus it’s had a negative impact on our industry’s ability to secure capital.”
Likewise, Sadove believes that a comprehensive effort to simplify and standardize tax codes will afford retailers the opportunity to invest in new equipment and technologies, open more stores and create more jobs.
Unlike industries in which global manufacturing and/or subsidiaries allow companies to keep profits offshore and pay lower tax rates, U.S. retailers “generally don’t operate large overseas businesses,” Sadove says. “It’s become a question of redistribution: Do we want a system where very different tax rates are paid by some of the largest companies in America, or is it time to do away with myriad loopholes and tax breaks and shift the conversation to sales tax fairness? I’m in favor of the latter, as are most retail executives.”
NRF will push Congress to lower the corporate tax rate to 25 percent from 35 percent and urge legislators to close the loopholes that allow some companies to pay significantly less. “There’s no question it will be a robust discussion,” French admits, “but if we can achieve meaningful reform on corporate taxes we can unlock capital and put that capital to work creating jobs and driving consumer demand. It’s going to require some heavy lifting to get this done, but I think the stars are aligned.”
The multi-channel disadvantage
A quicker resolution is expected on the issue of sales tax fairness, where a policy enacted in the earliest dotcom days allows pure-play e-retailers to achieve as much as a 10 percent price advantage over traditional merchants by not having to collect state and local sales taxes.
Kip Tindell, chairman and CEO of The Container Store, is adamant about the need for fellow retailers to get behind the Main Street Fairness Act. “It’s outrageous for online retailers not to collect sales tax,” he says. “When online shopping was just getting started, it provided an advantage and allowed [e-tailers] to build customer interest. Those days are long over, and for this benefit to still exist is ridiculous.”
Tindell acknowledges the myriad factors that influence buying decisions, “but price is, of course, always a pivotal element and there’s no reason for retailers to be at a competitive disadvantage because we operate multi-channel businesses.”
Establishing tax fairness would also benefit increasingly cash-strapped state and local governments. In fact, the inability to collect sales tax revenue “amounts to a $23.4 billion dollar hole in state budgets,” Shay says, and “that’s only going to become more acute the longer this unfair advantage persists.”
Retail leaders also intend to push for a significant reduction in visa delays. In particular, they want to make it easier for foreign tourists, especially those from China, to obtain visas to visit — and shop in — the United States. Doing so could result in millions more visitors, generating billions in economic output and creating new jobs in the retail and hospitality sectors.
“Thirty percent of the business at Printemps and Galeries Lafayette is coming from Chinese tourists traveling to Paris to buy luxury goods,” Sadove says. “I have every reason to believe they would spend the same way if they came to New York. The difference is that a tourist from China can get a visa to Paris by mail in 10 days. If they want to come to the U.S. they have to apply in person at one of five visa offices in China and then wait — sometimes as long as 120 days — for a visa to be issued.”
Like Saks, The Container Store’s unique concept makes it a magnet for tourists. “We know that the overseas traveler spends an average of $4,000 each time they visit the U.S.,” Tindell says, and the current visa process “is literally driving millions of potential visitors — and millions more in potential business — to other retailers around the world.”
Perhaps one oft-cited reason for tight visa restrictions is domestic security. Retailers — who operate stores within malls that are often considered prime targets for terrorists — respect such concerns. Still, Tindell insists, it’s “entirely possible to carefully remove many visa barriers while still retaining appropriate levels of security. A careful reanalysis of recent visa restrictions can maintain or even enhance security while not being so terribly detrimental to U.S. retailers’ international trade. What I’m afraid we’re doing now is throwing the good out with the bad.
“Our visa policies are no longer in line with those of other major shopping destinations around the world, thus closing ourselves off from the possibility of generating literally billions of dollars in new economic output.”
Restructuring trade barriers
NRF and its retail members are also lobbying for the restructuring of some trade barriers to bolster international commerce. From research and design to manufacturing, marketing and distribution, millions of Americans play a role in the global supply chain, and greater flexibility in the rules governing trade would reduce business costs and boost economic growth.
“Ultimately we try to deliver value to consumers in terms of both the products they want and the price they expect to pay,” French says. “Increasingly, trade barriers inhibit our ability to meet consumer needs.” In retail apparel, for example, “we face some of the highest and most irrational trade barriers. There’s a decades-long legacy of protectionism and a misunderstanding about where the value to consumers and the value to the overall economy interconnect.”
Another example: Home goods tariffs, which French says cost the American public about $40 billion a year, primarily due to Congress’ desire to maintain a U.S. manufacturing base.
“Congress has valued domestic manufacturing above consumption,” he says. “The Retail Means Jobs agenda is our opportunity to help Congress understand why we believe they’re putting emphasis on the wrong piece of the economic puzzle – and how that’s costing American jobs … in roles tied to the intermodal transportation system.”
Other policy issues at or near the top of most retailers’ agendas include modernizing the nation’s infrastructure, implementing smart health care reform and protecting consumer privacy while promoting innovation and customer service.
Wright believes it’s critical to convince political leaders of the need to improve the nation’s ports, railroads and roadways to meet growing consumer-driven demands. “We’d love to see them prioritize funding of transportation projects because we feel it’s vital to supporting economic growth,” he says. “The problem with these initiatives is that few are ever begun, finished and recognized in any [single] political term. As a result, [lawmakers] have a tendency to ... kick the can down the road.” Health care reforms loom large on the radar screen of retail CEOs hoping to achieve success in repealing the employer mandate that was one of the elements of the 2010 health care reform law. Most acknowledge, however, that of the various policy issues on the table none is more polarized than this.
Tindell is an advocate for health care reform. “If we could get retailers to cover all of their employees we’d be making real progress on an extremely tricky and important issue,” he says, “but the way the system is set now that’s impossible. There’s just no way we can do it. We need leaders who are willing to compromise and come up with a plan that is workable for everybody, but getting there won’t be easy.”
Retailers are also steeling themselves for a fight around the issue of consumer privacy. Industry-led self-regulation is the goal, with retailers seeking to preserve the ability to deliver targeted messages and personalized offerings to shoppers.
“Many of these overly strident laws being proposed would make the internet the domain of absolutely zero customer service commerce,” Tindell says. “Customers enjoy services that spring from [retailers] knowing their size or what they’ve purchased in the past. Some customer information is necessary in order for online retailers to provide the service that customers want and cherish from bricks-and-mortar retail. Allowing online retailers to offer a more personal approach can lift sales and foster loyal customers. A sensible approach to protecting vital information and some regulation is absolutely appropriate, but too much control will squash innovation, eliminate any possibility for true service and hurt revenue.”
Many of the policy changes being sought through the Retail Means Jobs campaign “are moving at different speeds,” Shay says. “Some will be resolved at the 13-mile marker, and others will require us to run a marathon. The overarching issue is [providing] some level of confidence both to business and to consumers about the future of our economy, and that means addressing the imbalances in our budget that are structural in nature and talking about how to ensure responsible approaches to bringing our revenues closer in line with our expenditures.”
“The good news,” he says, “is that the conversation has begun.”