Anomaly Detection In Retail Sales
Credit availability in the economy is one of the key indicators for retail sales. Two factors to consider one is the orientation of the consumer towards present products or future products and other is the increase/decrease in the money supply.
Retail sales track the consumer spending pattern. Variety of features impair the purchase behavior of the people. Actions people take drives the market.
When it comes to understanding human behavior, implicit data gives more information about the present mindset of the people than the explicit survey or any other metrics. Financial space has high levels of bias so data will not be able to mimic the underlying fundamentals. It’s one of the primary reason why most algorithms fail when predicting the upcoming event. Businesses in large part rely on anticipation of demand so they rely on economic data to make every business decision.
A retailer identifies consumer trend from the spending pattern so that he could adjust the supply chain operation to meet the demand. When to buy products? what would be optimal price points that would drive consumer as well as keep the margins for the stores? which products are in line with consumer demand? are also question that would require clean data on consumer behavior and economic variable to arrive at an optimal business decision on each operation of the business.
Price Of Other Products In the Economy
Pricing of products in the economy drives consumer behavior. The orientation of purchase towards the present or future products depends on pricing and credit availability. When the price of products in the economy increases people exhibit a couple of behavior — one being purchasing it today before the price hike happens if there is uncertainty in the future price of the product or they would weather the storm and wait out the price hike if they anticipate a future decline in pricing.
Pricing in the store has to mimic the changes in the economy. Pricing is a powerful driver of consumer behavior. Price hikes in other products impact consumer spending. Alleviating the inconvenience of the consumer will increase the volume of sales. The retailer should constantly price optimize the products, retail operation, sourcing and the supply chain operation. Price of all the products that would impact people should be considered while CPI leaves out Energy & food since they fluctuate a lot but the consumers pay the cost in the market place so it has to be considered.
Savings Rate
It’s a signal that informs the present orientation of the people. When there are more people saving then it’s a signal for the production & manufacturing companies to produce more since there are future buyers. Usually, these producers take up loans or invest the capital into production lines. The immediate benefactors are real estate owners, employees, raw material suppliers, and transportation industry. This metric will clearly showcase consumer confidence better than normal surveys about the state of the economy. It’s one of the implicit data that provides insight into the behavior of the pattern of the consumer and what he would likely do in the future.
Increased savings often lead to more job creation and increased spending activity as industries invest in production lines. Retailers are location specific so growth in the productivity and income benefits the sales. Industrial investment into production lines and capital goods benefits retail sales.
Loans Rate
Loans rates showcase that consumers are buying in the present. Increased loan activity shows that consumer is spending on products. Retail sales benefits from the increased availability of loans. Businesses will see their inventory reduce and but they should be cautious of investing those cash flow into new inventory or stores because it doesn’t signify future sales will happen. It can cause the price of products in the economy to increase so gradually the interest rates will rise to reduce the inflationary curves. Increased loans rates induce short term sales growth. It also shows people aren’t confident about future products or expect a price reduction anytime sooner so they want to buy it today.
Personal & Corporate Debt Level
Debt levels do impact purchase behavior of the people. When the cost of servicing the debt keeps increasing and the wage growth & GDP couldn’t keep up with those levels, it affects purchase behavior. Corporation and businesses also take loans in anticipation of future demand and produce products. If the businesses feel there will be fewer consumers buying in the future then they would curtail the production. When the debt levels are increasing then businesses should stop investing in long term projects and reduce inventory on hand.
When the debt levels are peaking usually the government or the Fed steps in to reduce the interest rates or cap interest rates. The rising debt level is a concern for retail sales. The solution would be to produce products that are in immediate need of the consumer. When the credit availability shrinks people curtail their purchase behavior. They resort to buying products that have an immediate need or the one that alleviates their immediate inconvenience.
When the debt levels are rising the best thing for the retailer to do is to reduce the cost of operation by demand shifting and pricing optimization. Demand shifting alleviates high frequency & Low volume of orders. Pricing drives consumer behavior so the price of retail products has to be dynamic to the economic variation.
Industrial Growth — New Orders
Businesses make the decision based on demand for the products in the marketplace. One way to identify the demand is to find out whether consumers are saving to buy future products or they are buying products immediately. Consumer confidence can be viewed from the savings vs loans rate. When the demand is identified industries take up loans or invest existing cash flow to fund new purchase orders.
New Orders growth is a sign that the economy is productive. The immediate benefactors to the investment would be the raw material supplier, real estate providers, and employees. So the new order growth is beneficial for retail sales. New Order growth aids for increased jobs and wage growth. One thing would remain uncertain is how well the industry has anticipated the demand in the market. New order growth without the increase in credit availability would lead to manufacturing glut of inventories.
When it comes to estimating demand implicit data provides more context on consumer behavior. Business decisions made on such data gives insight into future consumer behavior.
Tax Cuts
There are many factors that increase credit availability in the economy. Tax cuts increase the glut of capital availability in the economy. This would increase spending among consumers. Retail sales benefits from the increased glut of capital. The consumer orientation towards present or future products will determine where the money flows through. Discount stores saw a consistent increase in sales after 2017 tax cuts. It created a glut of capital in the economy. The employees got $1000 bonuses and the corporation also saved money on tax breaks which they have invested in the various business operations. It enhanced the overall GDP.
Deregulation
Deregulations often open up the marketplace for investments. Companies invest in the marketplace and the immediate benefactors would be the construction companies, raw material suppliers, real estate industry, electricity, & employees. They receive the investment first hand so it as acts as an increased glut of capital. Monitoring economic policies and consumer willingness toward a certain sector.
Regulation & Compliance
Regulations increase the cost of business operation. It also inhibits competition from thriving. The market is the best place to keep other companies in check. The market is dynamic and it can build solutions faster to alleviate the concern of the people. Usually, markets can build a solution to create a protective layer so that customers gain value. Imagine a case where quality has to be maintained and contamination has to be prevented. The market would have created some form of easy testing method for the consumer to verify that they are eating quality food.
From a retail sales perspective, the impact on the retail operation will depend on the nature of the regulations. If they remove capital from the marketplace then it leads to a decrease in credit availability in the economy.
Tariffs
Tariffs can increase the cost of imports. Consumers usually anticipate such events so they make purchases before the tariffs take effect or wait out till the prices stabilize. From a retailer perspective, tariffs have an adversarial impact if their supply chain cost increases. This creates uncertainty and reduced business activity. The retailer has to evaluate how long the tariffs are going to be in place and what volume of goods they have to purchase before tariffs take impact & will the consumer demand be there to consume the increased inventory.
Retailers can mitigate the cost of tariff by optimizing cost efficiency of the retail operation. One of the recurring cost in the retail supply chain is the transportation of goods based on demand. With pricing optimization such as discount coupons & bundled packages, the consumer demand can be shifted. This would lead to an increased volume of purchase made per visit. Transportation cost is reduced due to less frequent replenishment runs and full load runs.
Interest Rates
It’s one of the important signals in the economy. But also one of the highly biased since it’s controlled by the central banks. Any reduction in the interest rates would signify increased loan activity (both corporate and personal loans). In reality, interest rates mimic the orientation of the consumer to buying the present product or future products. Since they are highly manipulated they now just function as a source of increase or decrease in credit availability.
Retail sales benefits during lower interest rates period. Even when the interest rates are increasing there could other factors that can increase the glut of credit in the economy. In a sense, higher interest rates curtail credit availability in the economy.
Infrastructure Spending
Infrastructure spending gives a boost to economic activities. The money flows towards building new roads, bridges, tunnels, shipping ports, power lines, grids, gas lines etc. The new money allocated goes into the economy as the projects are taken by private vendors. In this case, as well the construction & building equipment companies, Iron & steel companies, raw material suppliers, earth-mover machine providers & facilitators, and employees gain the first-hand access to the capital. In the present day scenario, people are filled with debt and any new capital usually goes into making purchases in the economy. There are more immediate buyers in the economy so any new capital would go into purchasing products & servicing existing debt.
Retail sales benefit from the optimism that comes from the infrastructure spending bills. Businesses take corporate loans/invest money into production. Jobs growth will spur sales growth in retail space as people exhibit increased activity in the economy. Any project that increases activities of the people will create an opportunity for sales.
Fuel Tax
Fuel taxes have a direct impact on the consumer and the transportation industry. Since it’s most widely used utility, it’s an easy target to tax to fund governmental projects. Retail sales do get impacted due to reduced credit availability. Fuel prices has a bigger impact on people & supply chain so the retailers has to anticipate fuel price hikes and adjust the prices of fuel.
With the present debt levels, consumers will utilize the increase in capital available for immediate spending unless a prolonged period of uncertainty in prices exists in the marketplace. Wage growth is a consequence of investments made to the economy so wage growth can be anticipated when there is more investment in certain sectors of the industry. During uncertain times, it’s advisable to stock products that have immediate consumer requirement.
Investment Funds From Foreign Countries
Many countries have been actively investing in US technology eco-system. This activity has created access to new forms of capital in the economy. When a startup & existing company gets funded from countries then the new money flows the company and to the hands of raw material providers, employees, real estate agents, tech-infrastructure providers, and office furnishing providers. This creates a new money supply and increased cash flow into the pockets of the consumer. Increased money supply assist corporate sales.
Government Contracts
Private big companies often close governmental contracts to provide products and services to governmental institutions. These contracts are often multi-year and can be billion dollar contracts. This creates a glut of new capital in the economy with employees, infrastructure providers being the immediate benefactors. Retail sales benefits from increased capital availability in the economy.
Retail sale is a function of consumer spending activity. Implicit data best explains the mindset of the consumer & purchase behavior & activities of the consumer. Whenever the economic conditions change, whoever solves the customer inconvenience will gain new customers and their money.
