Shop Talk
Retailers, consumers and prices
Check Out Line: A decline in weekly sales numbers
Check out the decline in weekly U.S. same-store sales gains. After two consecutive weeks of strong positive weekly sales gains, retailers saw their sales take a breather with a 1.5 percent decline in the week ending July 10, according to the International Council of Shopping Centers and Goldman Sachs. Sales in the weeks ending July 3 and June 26 rose 1 percent and 2.1 percent, according to the report. On a year-over-year basis, sales also slowed to 3.2 percent, but continued to remain positive. “Sales showed a mixed performance over the past week as the seasonally-adjusted year-over-year pace continued to rise — although the unadjusted pace was much stronger due to the holiday-sales lift from a calendar shift when the Independence Day federal holiday was celebrated in 2010 and 2009,” ICSC chief economist Michael Niemira said in a statement. The ICSC reaffirmed its outlook for July U.S. same-store sales to increase in the range of 3 percent to 4 percent, compared with a 5 percent decline last year. However, U.S. retailers relied heavily on promotions to boost June sales, suggesting profit margins may suffer as they head into the key back-to-school shopping season. The Weekly Chain Store Sales Snapshot is produced by the ICSC and Goldman to measure U.S. same-store sales, excluding restaurant and vehicle demand, and represents about 75 retail chain stores. Meanwhile, Goldman analyst Michelle Tan said in a separate research note that there are few reasons to buy stocks in the apparel retail sector assuming a slow recovery. It cuts its 2010, 2011 and 2012 profit estimates by an average of 7 percent. “In a slow recovery with little sequential improvement in employment, sector sales have averaged less than 2 percent with flattish margins; this implies about 9 percent risk to Street forecasts,” Tan wrote. “History suggests downside risk to estimates in a double-dip scenario is roughly two times the upside in a robust recovery.”
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(Reuters photo)
Check Out Line: Beware the ides of rising costs for food companies
Check out fears of rising costs for U.S. food companies.
Rising commodity costs and promotional discounts are pressuring profit margins for food companies and analysts said more may be on the horizon.
General Mills, whose brands include Cheerios, Green Giant and Haagen-Dasz, said on Tuesday that the gross margin in its most recent quarter was flat, excluding higher ad costs and other items.
On Thursday, General Mills said it expects pricing and promotions to look the same over the next six months as they have the prior half year. It also sees some players in the sector moderating their promotional activity as commodity costs rise and sees raising list prices in some categories after that.
The company’s comments were seen as a harbinger of things to come, especially since its 2011 earnings forecast missed Wall Street estimates.
“I think ‘canary in the coal mine’ is a good way to think about it,” Janney Capital Markets analyst Jonathan Feeney said. “This is the first company to talk since Wal-Mart’s rollbacks.”
Earlier this year, Wal-Mart introduced discounts, which it calls rollbacks, on thousands of items, leading other stores and brands to cut prices.
What to do when Wal-Mart comes to town
What happens to sales at existing retailers when a new Wal-Mart store opens its doors?
That’s the question Kusum Ailawadi, professor of marketing at the Tuck School of Business at Dartmouth, addresses in a new research paper.
The professor and her co-authors studied 90 local supermarkets, drug stores and mass merchandise stores in seven regions of the United States, before and after a new Wal-Mart store opened. The team looked at weekly sales data for 46 product categories from these stores over a two-year period.
They said retailers — regardless of size – take a hit when Wal-Mart arrives, but that there are ways to soften the blow.
The study found that sales declined an average of 17 percent at supermarkets and 40 percent at mass merchants included in the study. Drug stores took a 6 percent sales hit on average.
But the researchers found that the loss could be minimized with smart marketing strategies. For instance, the study found that sales dropped an average of 20 percent to 25 percent when prices were reduced or when the assortment carried by the store was reduced after the new Wal-Mart opened. Here is the advice the researchers have for retailers that may find themselves going head-to-head with a Wal-Mart:
– Supermarkets should not reduce prices; they should offer deeper promotions and begin selling a higher percentage of top-tier national brands and private labels. – Drug stores should also not lower prices across the board. Rather, they should offer frequent promotions on a wide assortment of products. They should increase the total variety of products they sell. – Mass merchandisers are hurt most by Wal-Mart. They have no choice but to reduce prices if they want to mitigate losses, and they should definitely not reduce their product assortment.
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