Retailers, consumers and prices
Check out people buying only what they use.
Remember when every time you went to the store you bought toilet paper, paper towels and other basics just so that you wouldn’t run out?
Well, those days appear to be gone.
As companies like Colgate-Palmolive and Procter & Gamble report earnings, one thing becoming clear is that consumers are now using up everything they have in their cupboards before buying replacements.
Call it “destocking,” “pantry deloading,” or “inventory drawdowns,” but whatever it’s called, it cuts into sales — for retailers and manufacturers. As consumers are using up the shampoo or soup they have on their shelves before buying more, retailers are also getting rid of excess inventory before buying more from manufacturers.
With the economy in recession, consumers have every reason to be frugal. On top of that, manufacturers have raised prices over the past two years in order to cope with soaring commodity costs.
But with fewer items being purchased, the next question is whether those manufacturers will have to lower prices to maintain market share.
Also in the basket:
GDP sees biggest drop in 27 years
Unilever faces slowdown just as new CEO takes over
The government is expected to enact a large increase to the federal tax on cigarettes in order to fund an expansion of a children’s healthcare program. Many analysts expect some states to also raise cigarette taxes to fill their shrinking coffers.
Plus, the shrinking economy will be a test of just how “recession proof” the cigarette business is.
“If you are losing your job, one thing you are going to think about cutting back on your spending is smoking,” a Morningstar tobacco analyst said.
But is losing your job really enough to make you give up smoking?
Or does the added stress just want you to smoke more?
ShopTalk wants to know:
Check out the National Retail Federation’s sales outlook.
Even the retail industry’s trade group is expecting sales to fall 0.5 this year. The NRF, known for its optimistic sales forecasts, is expecting the first decline since it began tracking sales in 1995.
Oh, and things could even get worse.
If the government does not quickly pass an economic stimulus package, “then all bets are off,” NRF Chief Economist Rosalind Wells told Reuters.
With the U.S. in the throws of a recession, preliminary figures showed that retail sales rose 1.4 percent in 2008, well below the 3.5 percent increase the NRF originally forecast.
The year culminated with the worst holiday season in four decades or more, according to some analysts.
Retailer bankruptcies, job cuts and store closings have continued into 2009, and the NRF forecast is the latest sign that things are not expected to get better any time soon.
Also in the basket:
Hershey profit beats estimates, sticks by 2009 view
UK retailers predict worst February on record – CBI
Hartmarx seeks to stay whole (WWD, subscription required)
Check out this cheerful forecast form Societe Generale.
The French bank’s cross asset strategist, Albert Edwards, said the U.S. economy is likely to enter a depression. Oh, and look out for a global trade war with China.
For retailers reeling from the worst holiday season in four decades, the forecast cannot be welcome.
Edwards predicts the S&P 500 is set to fall another 40 percent from recent levels.
But there could be another problem looming, he wrote in a research note.
“It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a rerun of the Great Depression,” he said.
There you have it. Happy New Year.
Also in the basket:
Black Angus Steakhouse parent files for bankruptcy
Circuit City still in talks over potential sale
Deal-form-hell award to Landry’s (New York Times DealBook)
Check out the amendment to Liz Claiborne’s credit facility.
The owner of the Juicy Couture, Kate Spade and Lucky Brand chains worked out a new credit agreement that will not mature until 2011, replacing a current one that was set to mature in October.
Liz will get less credit — $600 million, down from $750 million — which the company says is appropriate given recent divestitures.
The agreement also comes with higher fees and interest rates, but eliminates some covenants.
The financial markets have closely watched Liz and other retailers to see if they can weather the tight credit markets and for any signs that those markets are loosening up.
The news of the new credit agreement helped boost Liz’s stock more than 12 percent in morning trading. Investors shrugged off the fact that the company now expects to break even or post a loss for continuing operations in the fourth quarter, rather than the profit of 19 cents to 24 cents per share it previously forecast.
Who needs to make money during the holiday season when your banks will let you extend your credit terms … As long as you can pay the higher prices.
Also in the basket:
Wendy’s scales back breakfast plans
Tesco, Metro show scars of downturn, but coping
Dumpster couture gets a boost at Green Inaugural Ball (WSJ)
Check out some cautionary comments about how much weight to put on Black Friday sales reports.
The comments come from the Goldman Sachs U.S. economic research group and repeat caution the firm has given in the past about the much-hyped kickoff to the holiday shopping season.
1. “Shoppers are not sales.” Essentially, Goldman Sachs notes that just because people are in stores, it doesn’t mean they are buying something.
“Over the years, Black Friday has become a cultural event; people go not just to shop but to be a part of the broader experience, which could cause an increase in traffic that bears little relation to consumer spending,” the Goldman team wrote.
2. “Sales are not profits.” Retailers were offering deep discounts to get consumers into stores on Black Friday, discounts that could hurt profits.
3. “One day is not the holiday season.” The team notes that the correlation between data on Black Friday and the entire holiday season has been historically poor.
Thanksgiving also came late this year, so there are fewer shopping days between then and Christmas.
“Simply put, with less shopping days each one has to be better for the overall holiday shopping season to be strong,” the Goldman Sachs team wrote.
Want to keep track of the holiday season as it unfolds for retailers? Check out the Reuters Holiday Shopping page here.
Also in the basket:
Bargain hunters fail to save retail sales
Sears Holdings posts loss, plans store closures
Staples posts higher than expected profit
Wal-Mart assailed on death (WSJ)
On Chicago’s State Street, I found these dinosaurs creeping up on a Christmas tree at the FAO Schwarz section inside Macy’s:
Moving on to an empty TV section in Sears:
At Sears, Christmas decorations were already 60 percent off:
And at Charlotte Russe, more discounts:
As we talk to more and more shoppers over the holiday weekend, the high level of personal anxiety over the future of the economy comes into focus. We have read, and written about, the numbers on consumer confidence and retail sales performance, but these quotes give us a more individual view. Below are some of the ways in which people described for reporters Aarthi Sivaraman and Ben Klayman their fears, or even a change in attitude, regarding money, jobs and family.
Jersey City, New Jersey:
Rose Fernandez, law enforcement worker:
“Yesterday I received my social security savings (statement) and looked at it. I’m concerned. I’m going to put more away.
Rose said her extended family was only living according to their means and were careful not to spend anything extra. She recently came out of $6,000 in credit card debt herself.
Every city has it’s way of dealing with recession. In Brooklyn, where “going out of business” sales may seem like a marketing tactic employed in good and bad times, it looks like shops are dead serious now. And they are getting more creative. We liked the VIP gift bag and the one-year deferred financing, photos via our own Martinne Geller:
The financial crisis has hit sales of everything from cars to homes to lattes. Now women scared about the market, and maybe even their own jobs, are wearing the old standbys in their closets rather than splurging on new clothes for work. At least, that’s what’s happening over at AnnTaylor, which expects a bleak fourth quarter.
Ann Taylor, the company’s stores stocked with business and business casual clothing, is feeling the “significant impact the financial crisis is having on the professional working woman,” Chief Executive Kay Krill said during a conference call on Friday.
“Corporate headcount reductions and rising fears of future unemployment have made our client cut down or even cut out her spending all together,” Krill said.
Ann Taylor stores are seeing a “dramatic pull back” in items like suits and workplace separates, which represent about a third of the items in its stores. Instead of buying a new suit, a shopper might just spruce up her wardrobe with a couple of tops.
“I think it’s a different day and definitely she’s not interested in suits. I think that women want their wardrobe to work harder for them. They want it to be able to go to work and on the weekend and that’s what we’re seeing happening.”
Over at the more casual Ann Taylor LOFT stores (seen here) sweaters, dresses, denim and other casual items were the top sellers last quarter, while shoppers shyed away from “refined separates,” such as shoes, bags and jewelry.
One bright spot? Cashmere, Krill said. Apparently, when the going gets tough, women wrap themselves in a little bit of softness to cushion the blow.