Retailers, consumers and prices
Food prices are on their way to posting their biggest increase in nearly 20 years and it’s not just the average consumer who is feeling the pain.
Whole Foods Markets Inc, the upscale supermarket chain known for selling natural and organic food to an affluent clientele, has rolled out programs to show consumers how to budget shop at its stores.
The chain — referred to by some as “Whole Paycheck” — has “value gurus” who take customers on a tour around the stores and show them how to get the best deals. It is highlighting its 365 private label brand, weekly promotions and other deals. And, it has launched “The Whole Deal,” a site that invites shoppers to share their money-saving tips.
Grocery stores have seen margins pressured as consumers pull back on certain organic food, switch to store brands from national brands and cook more meals at home rather than buying prepared food.
Check out Talbots’ sales forecast.
The struggling women’s apparel retailer said it expects same-store sales to be flat at its namesake stores in the current quarter and down low-to-mid single digits at its J. Jill stores.
That looks like progress, especially at the Talbots’ brand.
But, wait. Hasn’t the weakness in women’s apparel has been going on for some time now. So the glass-half-empty view would be to look at how that forecast compares with a year ago.
Same-store sales at Talbots’ stores fell 8.2 percent last year (and J. Jill same-store sales fell 6.5 percent).
So there might be some improvement coming at Talbots’, but it is off a weak comparison.
Then again, with how women’s apparel has gone lately, flat same-store sales might be a welcome new fashion trend.
Also in the basket:
Dollar Tree posts higher quarterly profit
Brown Shoe 2nd-quarter profit down; cuts outlook
Urban Outfitters Fashion Growth Plan (Wall Street Journal)
What makes jeans sit on the shelf instead of flying off the shelves? That’s up to the whims of American Eagle’s 15- to 25-year old target customer. The retailer’s summer offerings didn’t quite meet the expectations of its core audience, and sales suffered.
“We had a number of styles that just did not perform. And that hurt us very, very much,” American Eagle’s Chief Executive Jim O’Donnell said on a call with analysts.
Check out the falling gasoline prices.
The average U.S. price for regular unleaded gasoline fell to $3.70 on Aug. 22, down about 15 cents from two weeks ago. The price was also down 41.6 cents from the record higher $4.112 in July.
Soaring gasoline prices have been one factor that has kept consumers from going out to restaurants or spending on discretionary items like new clothes.
So if gas prices continue to fall, it could ease pressure on consumers and help retailers.
Trilby Lundberg, editor of the Lundberg survey that monitors gas prices, said if crude oil prices don’t move back up, gasoline prices would probably fall further.
That would just leave tighter credit, falling home values and higher food prices as factors that are stopping consumers from spending.
Also in the basket:
‘Beverly Hills, 90210′ products to launch (WWD, subscription required)
A home network where your TV talks to your fridge (N.Y. Times)
Check out the gloom wafting out of Omaha.
Warren Buffett told CNBC that the U.S. economy is unlikely to improve before 2009 and that shareholders in Fannie Mae and Freddie Mac could be wiped out.
That’s the latest unglad tiding for retailers looking at an already bleak holiday season.
Barnes & Nobles expects to open 20 to 25 new stores in 2009 — down from 30 to 35 store openings this year.
It’s not that the company wants to open fewer stores, according to Barnes & Noble Chief Executive Joseph Lombardi.
While the bookseller is taking advantage of favorable deals with existing landlords, it said the U.S. housing crisis and credit crunch mean that developers are not able to finance as many new projects — leading to fewer opportunities for Barnes & Noble to open stores in new shopping centers.
Check out a new survey on back-to-school shopping.
More than one-third of consumers plan to spend less when they shop for school this year, according to a survey by market research firm NPD Group.
Okay, many consumers may have already started, or even finished, their back-to-school shopping. And several back-to-school surveys came out last month from the likes of the National Retail Federation and consulting firm Deloitte that also showed signs consumers were cutting back.
(Actually, NRF broke its survey into two and showed that college kids were cutting back, but that younger students and their parents were planning to spend more. But that’s another story.)
NPD’s Marshal Cohen said the NPD survey is more current and is taken closer to when consumes will actually shop for school.
“On a good year, 25 percent start (shopping) and none have finished at the end of July,” Cohen said. He also noted that consumers have pushed the back-to-school season further and further back, waiting until the weather cools before buying apparel.
So, in this latest survey, NPD shows 35 percent of those surveyed plan to spend less on back to school and 34 percent plan to spend the same as in 2007.
Most plan to shop at discounters, but that percentage dropped to 81 percent from 84 percent. Office supply retailers continue to show more popularity, with 45 percent of those surveyed planning to shop at the Office Depots and Staples of the world, up from 43 percent in 2007.
Footwear stores fell 5 percentage points to 22 percent of consumers saying they were likely to shop at those outlets, with apparel stores down to 16 percent from 20 percent in 2007.
And that old backpack might just have to make it through another year. Only 33 percent of those surveyed plan to buy new school bags, down from 45 percent a year earlier.
According to Standard & Poor’s, which put out its own back-to-school study on Wednesday, about 75 percent of back to school spending occurs in the four weeks leading up to the first day of school, or during August. But many high school and college students wait until school starts before buying clothes so that they can see what is cool first, S&P said.
Also in the basket:
Wal-Mart profit up 17 percent, says consumers pressured
July CPI rise higher than forecast
Borders larger rival unlikely to make a bid (WSJ, subscription required)
Check out the fading influence of tax rebate checks.
Tax rebate checks helped boost June retail sales but their influence appears to have petered out by July, according to data released by the Commerce Department on Wednesday.
The figures showed that total sales at U.S. retailers declined 0.1 percent in July, which was in line with forecasts made by Wall Street economists. A big reason for the drop was a fall off in auto sales. Auto and auto parts sales fell 2.4 percent in the month, their biggest drop since April, and were off a whopping 10.5 percent from year-ago levels.
Check out how bad retail sales can actually mean good earnings.
It all comes down to inventory management. Retailers have aggressively cut inventory levels in order to cope with the slumping economy.
The bad news resulting from that strategy came last week when many retailers posted disappointing sales, in part because they had less goods on hand to sell.
“Our inventory levels in … clearance and transitional categories were significantly lower than last year, affecting sales results, but leading to improved gross margins,” Kohl’s Chief Executive Larry Montgomery said in a statement.
But the good news could come over the next several weeks, when retailers report second-quarter earnings. Those slashed inventories should have helped them preserve margins, which help profits.
So it’s not like the U.S. consumer is buying that much. But at least retailers didn’t get left with shelves of unwanted inventory.
Also in the basket:
Giant retailers look to sun for energy savings (N.Y. Times)
InBev seen posting modest profit growth in Q2
Check out the strong sales at McDonald’s in the … United States?
The world’s biggest restaurant chain posted its largest monthly U.S. same-store sales gain since February, when Leap year added an extra selling day. Barring the Leap year, July was the best month in 11 months.
It seems like only a few months ago people were worried that cash-strapped U.S. consumers would start shunning restaurants altogether, even the less expensive ones like McDonald’s.
In fact, it was. The company posted a drop in U.S. same-store sales in March, the first such decline in five years.
But the U.S. rebounded and strength in U.S. sales in July is a sign that the company is benefiting as consumers trade down from casual-dining restaurants like Red Lobster and Applebee’s, and that the value message of McDonald’s is attracting customers, analysts said.
Growth in high-margin items like drinks could also help the company offset rising hamburger commodity prices, UBS restaurant analyst David Palmer said in a research note.
Also in the basket:
Hormel gives lower 3rd-qtr view; cuts ’08 outlook
Rising grain costs hit consumers (Wall Street Journal, subscription required)