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Retailers, consumers and prices

Check Out Line: Gov’t stimulus may only help some retailers

April 2, 2009

JAPAN-ECONOMY/Check out how the new economic stimulus will help retailers. But only some of them.

The U.S. government’s $787 billion emergency economic stimulus, passed into law in February, aims to create or protect up to 3.5 million jobs while putting more money in consumers’ hands in the hope that they will spend it and boost the economy.

Despite a consumer benefit of roughly $200 billion, the 2009 stimulus will likely only result in about $30 billion to $50 billion in retail sales, said Morgan Stanley analyst Gregory Melich. And those most likely to see it are value-oriented retailers that sell consumer necessities, he said.

“Its impact on overall retail sales will likely only soften the fall,” Melich wrote in a research report from Wednesday. 

Melich said he expects the stimulus to aid retail sales by roughly 1 percentage point, making the anticipated decline about 1 percent in 2009, versus the 2 to 2.5 percent decline he would otherwise expect, given the nation’s rising unemployment and falling household wealth.

“‘Stimulus’ is more about reallocation than growth, reinforcing a Wal-Mart and trade-down world,” Melich wrote. He said he continues to favor ”low-cost distributors of things that people need,” such as Wal-Mart, Kroger and Wendy’s, as well as select discretionary chains including Lowe’s and casual dining company Darden Restaurants.

Discounter Dollar Tree and auto parts supplier Advance Auto Parts also fit the theme of lower-income consumers trading down to cheaper retailers, Melich said.

Also in the basket:

Rite Aid loss below view; sees fiscal 2010 loss

Topshop eyeing U.S. expansion

Dress shirts go traditional amid recession (WWD – subscription required)

(Photo: Reuters)

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