Shop Talk
Retailers, consumers and prices
Check Out Line: Surprise, surprise, a discount retailer is doing well
Check out the strong quarterly profit at discount retailer Dollar General.
The company, which prices most of its merchandise below $10, posted a stronger-than-expected profit thanks to bargain-seeking consumers who spent more per visit. Company executives talked of building sales momentum during the quarter and sales results in the current three-month period were encouraging.
As a result, Dollar General, which has received a boost from high U.S. unemployment rates, raised its full-year earnings forecast.
U.S. consumer spending rose in July at the strongest pace in four months, offering hope that consumers will be able to keep contributing to a modest economic recovery.
Meanwhile, overseas the message was mixed as Carrefour, Europe’s top retailer, said the summer sales trend was mixed in Europe but demand was holding up in emerging markets. Company executives acknowledged sales trends in Europe in August were slightly disappointing after a satisfactory July.
French luxury goods group Hermes posted a 52-percent rise in first-half operating profit, boosted by leather goods and slightly raised its full-year financial targets, while in Australia retail sales were surprisingly strong in July, suggesting the economy there looks solid.
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Check Out Line: Modest gains expected for U.S. retailers
Check out the modest gains expected for U.S. retailers in July.
U.S. retailers look set to report a small improvement in same-store sales for July as anxious consumers cut back on spending and big chains returned to discounting to lure them into stores.
Analysts are expecting same-store sales growth of 3.1 percent, compared with a decline of 5.1 percent last year, with department stores and discounters showing the biggest gains, according to Thomson Reuters.
July would be the 11th straight month of improving sales, but analysts warn beating last year’s weak results isn’t anything to crow about and new threats are on the horizon as consumer sentiment in July sagged to its lowest level since November.
“The consumer confidence numbers are hideous, and the promotions we’re seeing in the malls are pretty intense,” said Cowen & Co analyst Laura Champine.
Most retailers will report same-store sales on Thursday.
Meanwhile, in the consumer world, Procter & Gamble posted a weaker-than-expected quarterly profit as higher spending on marketing offset sales growth, while leather goods maker Coach reported better-than-expected earnings as demand picked up in North America and China.
Check Out Line: Gov’t stimulus may only help some retailers
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.
Check Out Line: No more 99 Cents in Texas
Check out 99 Cents Only Stores closing all of its Texas stores.
99 Cents, which sells a variety of household, food and other items often priced at 99 cents, says it will now focus on its core markets of California, Arizona and Nevada, where it has 230 stores that make up 90 percent of its sales.
Those states are also some of the hardest-hit by the U.S. housing crisis and credit crunch, and consumers pressured by rising gas and food prices are trading down from higher-priced stores to discounters to save money, a positive for 99 Cents.
99 Cents said its 48-store Texas operation lost $15 million or 15 cents per share in operating income over the past fiscal year, which ended June 28, and the stores were only generating slightly more than half of the average sales in its non-Texas stores. That suggests Texans are still able to afford hitting a Wal-Mart or Target instead of trading down to 99 Cents.
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Wal-Mart looks to political convention ads to lure shoppers
TV viewers may be undecided about how they will vote in the upcoming presidential election, but if Wal-Mart has its way, they should not be undecided about where to shop.
As the Democratic and Republican National Conventions get underway, Wal-Mart is preparing to launch a series of TV ads that will highlight how consumers, worried about the economic climate, can save money by shopping at the discount retailer.
The ads will run on cable news networks like CNN and MSNBC during the Democratic National Convention in Denver, Colorado, and the Republican National Convention in St. Paul, Minn. The ads will start on Aug. 25 and run through Sept. 7.
In rolling out the ads, Wal-Mart cited a survey by Voter/Consumer Research of Washington, DC according to which more than half of all Americans surveyed – including three quarters of African-Americans and about two thirds of Hispanics — said they are more likely to shop at Walmart discount stores now compared with six months ago. It also said that nearly half of registered voters who are currently undecided between presidential candidates Sen. Barack Obama and Sen. John McCain say they are more likely to shop at Walmart today than they were six months ago.
“Americans are facing unprecedented financial challenges and we see them in our stores every day — working men and women living paycheck to paycheck and faced with difficult decisions,” said Walmart U.S. CEO Eduardo Castro-Wright in a statement. “… This new advertising campaign reinforces that we will continue to be there for them.”
The ads will highlight Wal-Mart’s $4 generic prescription drug program, which it says has saved Americans an estimated $1 billion. It will also tout how consumers can save money and gas by taking a one-stop shopping trip to its stores.
It is an interesting time for Wal-Mart to link itself with the presidential election.
I see walmart as a sort of necessary evil. They do good and bad around the world i figure. If walmart was gone tomorrow another company would just replace it.
That said, walmart is the place I got to shop for most things when trying to go as cheap as possible. Which is most of the time ! It does drive me nuts that everyone and their brother shops there.
Wouldn’t it be great if the other companies could actually compete and we had options to shop at other places with the same prices?
I am not sure about them trying to pick peoples votes but I can say all political parties shop there, and all political parties have employees there.
As for me I will be shopping at walmart for the rest of my life I assume.
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Resident Shop Talk Expert
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