Shop Talk

Retailers, consumers and prices

Drift to thrift


As the economy founders and the ranks of unemployed grow, shoppers are embracing their inner thrift.

According to a new survey of 1,500 U.S. adults from WSL Strategic Retail, 52 percent of respondents agreed with this statement: “I’m proud of all the little ways I’ve found to save money.”

More than half of the participants were using more coupons and reading store circulars more closely. Sixty-two percent said they are more likely to wait for a sale before making a purchase.

Home cooking is back in fashion and so are leftovers — a trend supported by strong sales at companies like Kraft and weak sales at restaurants.

More than half of women polled said they were avoiding stores where they tend to overspend.

Check Out Line: Some light amid retail darkness?


Check out the mixed messages from Home Depot.
The retailer posted better-than-expected quarterly profit. But that was still a 31-percent drop.
The company also said it expected sales to drop more this year than it previously thought.
Home improvement retailers were the leading edge of the retail slump, getting hit by the housing slowdown before the rest of the economy fell into what is likely a recession.
But with rival Lowe’s and now Home Depot both beating expectations, there could be signs of of a turnaround.
“Hardline retail stocks have historically begun their recoveries when expectations begin to be achieved, and this may be happening for Home Depot and Lowe’s,” Credit Suisse analyst Gary Balter said in a research note.
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Saks third-quarter loss wider than expected
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(Reuters photo)

Check Out Line: Another week, another sales drop


Check out sales falling again in the latest week.
The International Council of Shopping Centers-Goldman Sachs chain store sales index showed a 1 percent drop in the week ended Saturday, the worst week since April 5. Year-over-year, the index increased four percent.
But the ICSC did point out some positive factors for retailers: traffic improved at discounters, department stores, wholesale clubs and even apparel retailers.
Perhaps consumers can afford to drive to those stores again.

According to the U.S. Energy Information Administration, the average retail price of a gallon of regular-grade gasoline in the United States fell for the eighth consecutive week to $2.22 on November 10. That’s a $1.61 per gallon drop since September 15, ICSC noted.
Even the rising unemployment figures could be interpreted in a positive light. 
A J.P. Morgan research report notes that in the past five recessions, unemployment increased by about 2.5 percentage points from the low to the high, while retail stocks bottomed about halfway through.
“Although we’re not ready to call a bottom, we’d note that unemployment has increased (1.7 percentage points) from its recent sustained trough in February 2008, more than the historical halfway mark of past recessions,” analyst Charles Grom wrote.
The unemployment rate was 6.5 percent in October and J.P. Morgan economists see it peaking at 8 percent in the second quarter of 2009, so by that estimate, the rise in unemployment is more than halfway done.
Not in time for Christmas, but is there a light at the end of the tunnel in 2009?
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Check Out Line: Short-Circuit City


Check out Circuit City’s bankruptcy filing.
It’s been expected for some time, but Circuit City on Monday said it filed for Ch. 11 bankruptcy reorganization.
The thing is that there is some doubt about whether reorganization will work.
“We would note that we have not seen a consumer electronic retail(er) successfully reorganize in Chapter 11 in our 24 years in this space,” Credit Suisse analyst Gary Balter said. 
“One reason is that consumers become reluctant to buy extended service warranties from chains in bankruptcy and ESP’s are a key part of the profit formula,” he said in a research note.

Tweeter filed for bankruptcy protection in June 2007 and was later bought by Shultze Asset management.  But that chain filed for Ch. 11 again last week.
There are a lot of places out there to buy flat screen TVs, DVD players, video games and the like and that competition from Wal-Mart, Best Buy and others is one thing that put pressure on Circuit City.
Circuit City lost money in five of the last six quarters and as the global credit crunch pinched suppliers, those suppliers have tightened credit terms.
Circuit City already said it is shutting down 155 stores.  But the bankruptcy filing is a sign the company didn’t even have time to wait through the key holiday shopping season before reorganizing.  Or the weakened economy could just mean that there wouldn’t have been enough demand to matter.
So Circuit City hits the reset button and hopes it isn’t “Game Over.”
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Hard times for European luxury firms (WWD, subscription required)
McDonald’s Oct. same store sales rise 8.2 pct
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Check Out Line: Warehouse of woe


Check out the falling same-store sales at Costco.
Okay, October was a pretty rancid month for most retailers, and most did worse than Costco.
But the warehouse club operator had a 1 pct same-store sales decline in October that was its worst performance since Thomson Reuters began tracking such data for Costco in 1997.
Warehouse clubs had been holding in with cash-strapped consumers looking to save money with bulk purchases of toilet paper, food and other essential items.
But consumers have really cut back on the nonessentials, so sales of items like computers, toys and jewelry suffered.
Wonder how the 1,000-count bottles of aspirin are selling as consumers cope with the economic headache.

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Check Out Line: Sales up at Burger King, profit misses view


Check Out Burger King missing Wall Street views but saying sales grew 12 percent worldwide, with sales at restaurants open at least a year up 3 percent in the United States and Canada.

Lower-cost fast-food chains have benefited in the economic downturn, while higher-priced sit-down restaurant chains like Applebee’s and Chili’s Grill & Bar have been hit particularly hard, as consumers slash discretionary spending to adjust to falling home prices, a credit crunch and higher food and fuel costs.

Check Out Line: Wal-Mart meets the analysts


Check out Wal-Mart meeting with analysts as a global recession looms.
The company has done well in 2008 as U.S. consumers flocked to its lower-priced goods while the economy slowed.
But now investors want to see if the company can keep it going in 2009.
Analysts, who meet with the company Monday and Tuesday, want to see if the world’s largest retailer further trims its store opening plans.
Wal-Mart will likely continue to benefit — at least compared with other retailers — as consumers keep a tighter grip on their wallets while the economic slowdown spreads around the world, analysts said.
But they note that when consumers have less money, they also have less money to spend at Wal-Mart.
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Alberto Culver sales beat Wall St view

(Reuters photo)

Check Out Line: Christmas, anyone?


scrooge.jpgCheck out the holiday cheer coming from Hasbro’s CEO.
Remember when everyone said luxury stocks were more immune to a recession? That was before the housing slump, the credit crisis and the meltdown on Wall Street. Now the Dow Jones Luxury Index is down 52 percent from a year ago.
Remember when food companies said they were a little less vulnerable to an economic downturn because people still have to eat? Well, people still need to eat, but lower-priced store brands have been taking market share and food shares, as demonstrated by the Standard & Poor’s Packaged Foods index falling 11 percent in the past three weeks.
Well, now the next test case might be the idea that people will still keep spending on toys for their children during Christmas.

“We still believe that Christmas will come for consumers and retailers this year and our retailers have agreed that toys and games are more recession resistant than other discretionary spending categories,” Hasbro CEO Brian Goldner said during a conference call with analysts.
Hasbro beat analysts quarterly profit estimates, while higher costs caused Mattel to miss.
But what kind of Christmas will it be? Christmas came for the Cratchits in “A Christmas Carol,” but while it was full of good feeling and cheer, it was a tad light on presents, at least before Scrooge had his epiphany.
Will Christmas for toymakers be commercial, or Dickensian?
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You asked for a bailout


This man wants to bail you out — with breakfast. marchioli.jpg

Denny’s Chief Executive Nelson Marchioli is offering the Weekday Express Slam, a budget-version of the company’s mainstay $6 Grand Slam breakfast, for $4 on weekdays from 5 a.m. until 4 p.m.

The move from Denny’s, the always-open restaurant chain, comes as companies use timely pitches and discounts to tempt consumers who are increasingly worried about recession to crack open their wallets.

Check Out Line: What was the real bubble?


clouds.jpgCheck out the stocks bouncing back.
The Dow is up more than 4 percent. Retail stocks are up nearly as much.
Governments are pouring money in to help bail out banks, the market is reacting favorably and all is right with the world, right?
Well, probably not. Reuters columnist James Saft argues that the bubble in the economy was not just in real estate, but also in consumption.
The bursting of that consumption bubble is already hurting retailers, of course.  Just look at last week’s sales numbers.
The New York Times also points out that the one reliable bastion of conspicuous consumption, teenagers, is also having to pull back on spending.
As we all embrace the simple life, the problems for retail could well continue. After all, there weren’t a lot of Hollister jeans and big screen TVs on Walden Pond.
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