Retailers, consumers and prices
Moving goods quickly and efficiently is key to Wal-Mart’s low-price strategy. On Thursday, Reuters got a first-hand look at the discounter’s Bentonville, Arkansas, distribution center that serves as a prototype for any new general merchandise distribution centers the company will add.
“Logistics is the lifeblood of Wal-Mart,” said Kevin Jones, a Wal-Mart regional vice president, who underscored that several of the world’s biggest retailer’s chief executives, including Mike Duke, Lee Scott and David Glass, led logistics operations earlier in their careers.
The facility, which is among more than 140 Wal-Mart distribution centers in the United States, has 1.2 million square feet under its roof and services 120 stores in four states.
Twelve miles of conveyor belts snake through the facility, which combined receives and ships 400,000 to 500,000 cases of product each day. To put that into perspective, one of the roughly 400 trucks that come in or out daily can carry 1,500 to 1,800 cases per trip.
Check out a couple more bleak consumer signals.
The Conference Board on Tuesday said that U.S. consumer sentiment fell to its lowest level in 16 years. One analyst, Dresdner Kleinwort Securities’ Dana Saporta, said the sentiment gauge has dropped 55 percent from its peak in July 2007, a bigger decline that seen after the Sept. 11 attacks and Hurricane Katrina.
So even with consumers getting those tax rebate checks, they might not be in much of a mood to ramp up spending in the face of soaring gasoline and higher food prices.
In fact, Citigroup retail analyst Deborah Weinswig lowered her estimates on department stores and several other retailers today.
“While (the second and third quarter) could benefit from the tax stimulus checks, we expect current pressures facing the consumer, including across-the-board inflation, housing and credit concerns, and a deteriorating employment picture, to continue to weigh on consumers for at least the remainder of 2008 into 2009,” she said in a research note.
Consumers are also showing some signs of cutting back at the grocery store.
Kroger said on Tuesday that it has seen an increase in sales of its private-label brands. That could be bad news for makers of brand-name foods. Both brand-name and private-label food prices have gone up as manufacturers try to offset soaring commodity costs.
The branded food companies have argued that as long as the gap between their price and the price of private-label products does not get out of whack, then consumers will still see the value in the branded products.
But if consumers are getting to the point where they just need to save money, even if it means giving up the brands they love, that could squeeze the big food companies.
Also in the basket:
Hollywood Labor strike: Retailers dread impact of walkout by actors (WWD)
Athletic-Wear Firm’s Olympic Dream Fades (Wall Street Journal)
“Kroger continues to help customers stretch their budgets in a number of ways, including lower prices and our expanded generic drug and gas discount programs,” chief executive David Dillon said in a statement.
Check out a flood of fresh trouble.
Consumers are already being clobbered by soaring food and fuel prices, and that has kept them from shopping for things like clothes.
But the floods in the Midwest over the past week are likely to make things even tougher on consumers. The floods have hit millions of acres of soybean and corn farms, removing more supply from an already tight market.
That is likely to add more to inflation, meaning less money in shoppers wallets, analysts said.
“CPI readings for the remainder of 2008 will be slightly higher than otherwise,” Citigroup economist Steven Wieting said in a report. “This reduces real incomes and can also affect financial market expectations at the margin.”
The consumer price index, or CPI, measures the change in prices that consumers pay for goods and services.
So much for the rebate bump.
Also in the basket:
Staples win EU okay for Corp Express takeover
General Mills sees 2008 earnings above targets
Same-sex marriages boost California stores (WWD)