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Why Retailers Should Worry In Spite of Strong Traffic

With some intermittent exceptions, retail store traffic has been strong for most of this year. Satellite analysis shows that the post-Thanksgiving volumes are also strong, though not superlative. That's good news for retailers, right?

To use the words of an old song, "it ain't necessarily so." Why might that be? The first reason is because of all the discounting that has been going on. Sure, sales volumes are brisk. But that's because price cuts have lured people into the stores. That translates into sluggish sales growth in terms of DOLLARS, and compressed margins.

The second reason is already apparent in the consumer staples area; people are now "downtrading" for cheaper, lower margined "brands." Companies like Proctor & Gamble are suffering more from this like no time in recent memory. If consumers are doing this with necessities, how much more will they do this more discretionary items?