Timely Data, Timely Strategies

High-Speed Economic Data for the Fast-Paced Ever-Changing Retail Industry

Insights From MasterCard Advisors SpendingPulse

Retail is by nature a forward-looking business. You decide now what you’ll be selling next season; then you get ready today for tomorrow’s needs. Inventory, marketing, and sales decisions are based on predictions and forecasts. One way merchants approach this is by combining a measure of where the economy is today with an understanding of upcoming trends. That’s why it is critical that retailers get the best data they can — their business depends upon it. They watch their own sales and store traffic, read the government and industry reports, survey their own customers, and follow broader consumer research. Many of these traditional sources of information take a while to compile and deliver to the market, but in a fairly stable economy, taking this approach has until now been the best way to move forward.

But one of the big lessons from the recent economic turmoil is that consumers can rapidly and significantly change their spending behaviors based on fast-moving economic news. In the wake of the market collapse and subsequent recession, we have seen consumers turn their spending behaviors on a dime. As a result, retailers have found that it is no longer sufficient to manage to the previous month’s results; merchant strategies must be based on the most current consumer behaviors allowing them to be more nimble in responding to changing consumer behavior. They also need a better understanding of demand cycles so that they can take some of the guesswork out of provisioning for the future.

There are new solutions that meet the needs of merchants in the current environment, in the form of technologically -enabled “high speed” data services. One of these is SpendingPulse™, a macroeconomic indicator developed by MasterCard Advisors, the professional services arm of MasterCard (MA). SpendingPulse provides an accurate and timely measure of total retail sales – across all payment forms including cash and check – across a broad range of retail industry categories.

By using this valuable consumer research tool, we at MasterCard can better understand the ways consumers use different forms of payment, not just as a single generalization, but also in an ongoing and seasonally adjusted fashion (for example, consumers use their cards more heavily going into the December holiday season, and tend to pay off debt in February). From this, our statisticians and econometricians have created models that enable us to develop and estimate for those payment forms based on card transactions. By applying this understanding to aggregated sales activity in the MasterCard U.S. payments network, we are able to generate these detailed reports – and because they are based on high speed transaction data, they can be delivered at unprecedented speed. Full data reports are available the first Monday of the retail month, and weekly reports are also available by request. The sheer volume of aggregated transaction data that crosses the network helps produce a statistically valid snapshot of sales within a specific industry, such as apparel or electronics, as well as aggregate U.S. retail sales.

SpendingPulse provides some of the most sought-after economic information available today, offering perspective on the performance of the overall retail economy and on a particular sector, both nationally and regionally. This regional data is particularly important as it can help national chains determine which regions are growing fastest and where they may want to focus their attention in terms of store openings and closings.

In this new era of virtually high speed economic reporting, managers, retail buyers and marketers can develop strategy, confident that they have the best available information on consumer spending in their category, the broader consumer spending dynamics including trends developing over time, and an understanding of how their own chain’s performance benchmarks against overall spending in their category.

Ultimately, timely information about consumer behavior can play a huge role in a merchant’s success. It enables the chain to manage business and inventories, and it helps improve overall performance — all by making the right decisions based on what’s just happened.

Michael McNamara is VP of Research and Analysis for MasterCard Advisors SpendingPulse. For further information on SpendingPulse please contact: greg_howes@ mastercard.com