Shop Talk
Retailers, consumers and prices
Check Out Line: Inflation? Deflation? Conflagration?
Check out the economic cross-currents swirling around U.S. consumers, retailers and manufacturers. So, what’s it going to be? Inflation, deflation or just a big squeeze all around? The U.S. economy is still suffering from high unemployment and sluggish consumer spending and sentiment. On Tuesday, the Fed said it would buy more government debt in the face of the weakening recovery. “The pace of recovery in output and employment has slowed in recent months,” the Fed said after a one-day policy meeting. There is some concern about deflation, especially in bigger ticket items, with prices falling and cash-strapped consumers holding off on purchases expecting further price cuts, which just leads to more falling prices. “Just when it looks like buyers were starting to come back, now they have another reason to wait,” Robert Yerex, chief economist at workforce management company Kronos, said. He pegs the chances of deflation in the United States at as much as 20 percent. But there are also conditions that point to inflation for consumers instead, including rising costs for commodities like wheat, which may be starting to drive up the price of some products on grocery store shelves. An analysis by J.P. Morgan showed that the price of a 31-item basket of goods at Wal-Mart rose 5.8 percent in July from June. Analysts think Wal-Mart may be pulling back from the aggressive price cuts it made earlier this year and that could lead to other grocers raising prices. Down the road, rising costs in for cotton, freight and for labor in China could also push prices up for clothes, analysts said. But a key question is whether consumers, who are used to receiving big discounts, willing to pay more in a weak economy. The other question is, do consumers really watch closely enough to know when they are paying more in time to push back? Or can prices go up as long as retailers are willing to put the 50 percent off sign out there when products don’t sell? Also in the basket:
Macy’s raises forecast as profit beats Street
Grocer Metro profit rises on operations, sales
Nestle and CSM caution over higher input costs
(Photo: Reuters)
Check Out Line: Prices rose in May but they’re still down
Check out the latest data that could help erase some inflation worries.
U.S. consumer prices rose at a slower-than-expected pace in May, despite higher gasoline costs. Also, consumer prices have fallen over the past 12 months by the most since 1950, according to new data from the Labor Department.
The Consumer Price Index edged up 0.1 percent in May after being flat in April, below market expectations for a 0.3 percent increase. Compared to the same period last year, consumer prices fell 1.3 percent, the largest decline since April 1950.
Which prices fell? Among the declines, apparel and food each fell 0.2 percent and tobacco (which was being advertised at this Hess station recently) fell 0.3 percent. Shoppers are paying more for items such as gasoline and prescription drugs.
Also in the basket:
Creating a to-do list for Wal-Mart’s new CEO
This Saturday, Lee Scott will retire as CEO of Wal-Mart, the world’s biggest retailer, and Mike Duke will step in to the CEO shoes on Sunday.
Since the management change was announced in November, ShopTalk is fairly certain that Duke has come up with a pretty long list of things to do in his first few months as CEO.
But Reuters talked to analysts and investors about what they want Duke to focus on.
Some said Duke should continue the turnaround started by Scott, looking to boost results in its existing U.S. stores by slowing the opening of new ones.
Others said Duke needs to focus on building loyalty among the new shoppers that it has attracted during the recession to help keep its sales momentum going when times get better.
Another issue for Duke will be to find ways to spur strong sales in its grocery business as it looses the boost created last year from soaring food inflation.
If you could add to Duke’s to-do list, what would you want him to focus on?
I know that a lot of the soft goods, toys, and the like are from China… my concern is the food. My husband bought some nuts that listed ‘Product of California -packaged in China’.
If you look at the Great Value brand of foods- They say ‘Marketed by Wal-mart or Distributed by Wal-mart’. The origin is not on the package.
The prices are low, but keep in mind that China has no problem poisoning their own kids with tainted milk.
WHY ON EARTH WOULD THEY CARE ABOUT US?
If Sam Walton were still alive this whole China thing would be a non-issue.
Maybe the heirs will wake up and start using domestic products again.
Thanksgiving ’08 will gobble up more of your dollars
Thanksgiving dinner promises to take a bigger bite of your wallet this year.
“Thanksgiving food prices are up about 6 percent compared to last year,” said Corinne Alexander, a Purdue University agricultural economist.
Alexander said grocery store prices are increasing at a pace of 7.6 percent, compared with restaurants’ rise of 4.5 percent.
Still, consumers planning to have a traditional Thanksgiving meal at home should find bargains on several holiday staples, including the symbol of the season: turkey.
The estimated wholesale price for turkey is 3 cents to 7 cents per pound higher than in 2007, driven by higher export demand for U.S. turkeys.
Still, Alexander said “turkey is a favorite loss leader item for grocery stores, where they’ll offer you a coupon or a discount to give you a really great price on turkey,” Alexander said.
Grocers typically offer virtually free turkey in hope that shoppers will pick up the remaining fixings for their meals at the same time.
99 Cents? Maybe Not For Long …
The latest example of U.S. inflation seems likely to come from 99 Cents Only Stores, the Western retailer that stocks everything from canned beans to cleaning supplies, party favors and fresh vegetables — all for 99 cents or under. On Monday, the City of Commerce, California-based company, with 277 stores in California, Texas, Arizona and Nevada, will announce what it calls “its first change to its price policy since its founding over 25 years ago.” The Los Angeles Times said this was most likely a precursor to price hikes.
99 Cents Only Stores isn’t fessing up just yet, but chances are prices won’t be getting any lower, given the rising price of food staples like milk, eggs and bread that the company sells. The company’s most recent ad announces deals like 99 cent cantaloupes, Hannah Montana notebooks, microwave popcorn and reading glasses. 99 Cents Only Stores posted a net loss of $1.51 million in its most recent quarter despite a 4 percent rise in sales from a year-ago net profit of $2.96 million. Profit was hurt by rising operating expenses and higher cost of sales.
“We would like to assure our wonderful customers that they can continue to depend on 99 Cents Only Stores to have the best values on quality merchandise including food and other basic household items,” said Chief Executive Eric Schiffer in a statement.
The big question: If prices rise, what happens to the store’s name?
Check Out Line: Are you ready for some (more expensive) football?
Check out what it costs National Football League fans to attend games.
The latest NFL season got under way Thursday night as the defending Super Bowl champion New York Giants opened their season with a win (pictured right). For their fans, there were some changes that affected their wallets.
The average ticket price to attend an NFL game rose almost 8 percent to $72.20, according to Team Marketing Report, a Chicago-area sports marketing firm. And if a family of four wants to take in a game played by the Giants, get ready to shell out almost $500 for tickets, beers, hot dogs and other items.
The increases are de rigueur nowadays as the various North American leagues continue to report record attendance and revenues, but cracks may be starting to appear as some fans have begun dialing back spending amid high prices for gasoline and food, and rising unemployment.
As long as the market will bear it, however, fans of the NFL and other professional sports will have to budget for the increases if they want their game-day fix.
Also in the basket:
Check Out Line: The short-lived tax rebate boost
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.
But excluding autos, retail sales were up 0.4 percent in July. That was roughly in line with forecasts, but down from a 0.9 percent rise in June.
Economists said before the numbers were released that spending has been supported by government stimulus checks but that the stimulus effect was waning in July because most of the checks already have been issued. Meanwhile, prices for many food items are on the rise and there was only a slight moderation in gasoline prices during the month.
The Commerce Department said gasoline sales in July were up 0.8 percent after a 4 percent June jump. But reflecting higher prices, gasoline sales were 24.6 percent higher than in July last year.
Excluding gasoline, retail sales in July fell 0.2 percent after a 0.1 percent June decline.
Check Out Line: Of incomes, spending and jobs
Check out more signs of consumers being put in a vise. Personal income rose 0.1 percent in June, the Commerce Department said. That was the lowest rise since April 2007. And in fact, if it were not for the economic stimulus checks some consumers received in June, disposable income would have shrunk, the department said. Meanwhile, costs continued to rise. The personal consumption expenditures price index — an inflation gauge — rose at its highest year-over-year pace since May 1991. Consumer spending rose 0.6 percent in June, but actually fell 0.2 percent accounting for inflation. So consumers are spending more to get less. Oh, and one more thing on the gloomy economic front, Challenger, Gray & Christmas Inc said planned layoffs at U.S. companies rose 26 in July from June. Also in the basket: Retailer Boscov’s files bankruptcy, may be sold Walgreen July same-store sales up Burani says investor eyeing bid for 15-18 percent stake Calvin Klein’s latest controversy (WWD)
(Photo: Reuters)
Inflation is going to be the story of 2009, and will be bigger than the housing crisis of 2009. Consumer spending will continue to rise to keep up with inflation. The housing bill will put more money in people’s pockets and also drive inflation, and probably just delay the inevitable housing depression a bit longer.
Check Out Line: International strength pretties up Avon profit
Check out how international sales and the weak dollar continue to lift quarterly results at U.S. companies.
Second-quarter profit at cosmetics firm Avon Products Inc more than doubled, as demand in Latin America and other overseas markets more than made up for sagging U. S. results.
Office Depot posted a 6 percent drop in North American retail sales, but a 13 percent rise in international sales during in its most recent quarter.
Still, investors are wondering when and if the United States’ economic malaise will spread to markets like Europe, Asia and Latin America.
Some cracks are already showing. Britain’s stressed housing market is putting pressure on consumer spending and Spain has reported a plunge in June retail sales amid a severe economic slowdown.
Also in the basket:
Check Out Line: Dollar Menu dissected
Check out the demise of the dollar menu as we know it? McDonald’s, dealing with rising commodity costs in the U.S., said it is looking at changes to its popular Dollar Menu, which accounts for about 14 percent of U.S. sales. “What fits on that menu will look different than now because it has to be profitable,” said McDonald’s Chief Operating Officer Ralph Alvarez on a conference call with analysts. “We’ve got to make sure we’re pricing smart, not just pricing low. We’ll make the move at some point,” Alvarez said. The comments from Alvarez come two months after Chief Executive Jim Skinnner said the company was willing to absorb some rising costs in order to ensure customer loyalty. “This is not the time to be passing that on to consumers. They have long memories,” Skinner said. One analyst said the popular double-cheeseburger could disappear from the Dollar Menu. But pegging an offering, or even a business, to the dollar can prove to be a dicey proposal. The dollar has weakened and costs have gone up. Most “dollar” stores, for example, stopped capping prices at one dollar years ago. But analysts do not see McDonald’s straying too far from the dollar. “We do not expect McDonald’s to abandon the dollar price point, but rather evolve the menu with either new products at a near-dollar price point or adjust the pricing of select products that have seen significant cost pressures,” Goldman Sachs analyst Steven Kron said in a research note. Perhaps calling it the “Mighty close (to a) Dollar Menu” would solve the problem. To long? Well, that could always be shortened to “McDollar Menu.” Also in the basket: RadioShack 2nd-qtr profit tops view, sales rise UST profit dips, premium brands weak And the plot thinned… (N.Y. Times)
(Photo: Reuters)
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Resident Shop Talk Expert
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Deflation – just another bogeyman with which ill-informed journalists and the media generally can frighten the public. ‘If it bleeds, it leads’.
How an economy like the US, with a rising population, youngish on average with one of the highest birthrates in the West, plenty of immigrants – both legal and illegal – arriving constantly and a government intent on stoking inflation with loads of printed and borrowed money, can possibly slip into deflation is beyond me.
Always remember, the deflation example constantly used by the media, Japan, is an aging country with a shockingly low birthrate, no immigration at all and with its population decreasing in actual numbers. The analogy is strained and, in my opinion, irrelevant.