Retailers, consumers and prices
Discount retailer Target Corp rang up its fifth consecutive lower quarterly profit, suspended almost all of its share buyback program and cut capital spending plans as cash-strapped consumers shifted away from its trendy merchandise to staples like food and toiletries.
Meanwhile, Lowe’s Companies, the No. 2 home improvement retailer, posted a lower profit, but even worse cut its fourth-quarter profit forecast below Wall Street’s expectations, citing rising unemployment, falling home prices and tight credit as reasons homeowners are putting off some renovations and purchases.
Most economists say the U.S. economy is in recession and will shrink even faster in the fourth quarter. The news reflects the pressures consumers are under.
The result? Fewer shoppers plan to use credit cards to buy gifts this holiday season and most have yet to complete their gift buying as retailers brace for their worst holiday season in about three decades. In fact, more consumers are simply putting away their plastic.
Check out retailers changing their return policies.
More than half the retailers surveyed by the National Retail Federation say their return policies will be more lenient during the holidays than the rest of the year.
Also, 11 percent of retailers said their return policies would be looser than last season.
In recent years, some retailers have made it harder to return items in order to combat fraud.
But with the Untied States in what many economists say is a recession, retailers are seeing an increase in returns as a percent of sales and are trying to be practical in their policies.
“Retailers seem to be finding a balance between providing good customer service to shoppers while preventing criminals from taking advantage of lenient policies,” said Joe LaRocca, NRF Vice President of Loss Prevention.
Also in the basket:
Wal-Mart profits from discounts
U.S. jobless claims highest in 7 years
Benetton 9-month net rises, sees 2008 up
The return of the interview suit (N.Y. Times)
Check out the Whirlpool of woe.
Five thousand. That’s the number of jobs Whirlpool plans to cut by the end of next year as it faces falling sales in North America and a potential global recession.
Appliance makers have already been hammered by the U.S. housing collapse. Now the credit crunch is likely to keep demand down, the world’s largest appliance maker said.
“The global credit crisis has had a profound negative impact on what was already a weakening and very fragile global economy,” Whirlpool Chief Executive Jeff Fettig (pictured left) said in a statement.
Some of the job cuts had already been announced. Others were new. They all add to a slew of job cuts announced by corporate America in recent weeks.
That creates a spiral of people not being able to buy the goods the manufacturers make, which could cause manufacturers to cut more jobs as the economy keeps swirling down the drain.
Also in the basket:
Sam’s Club opening new store called Mas Club
Retailers slash Blu-ray player prices (WSJ)
Check out Coach opening stores.
The pricey leather handbag maker saw earnings fall in the quarter and also ratcheted down its sales forecast for fiscal 2009. But that sales forecast still calls for a 10 percent increase from a year ago.
And even in what some economists say is already a U.S. recession, the company is moving ahead with dozens of store openings and, in fact, those openings are ahead of the company’s plan, CEO Lew Frankfort said.
Coach plans to open 40 stores in this year in North America, 10 in Japan and five in China.
“Our new store openings are profitable from the first day,” Frankfort said in an interview. “All new stores are opening ahead of plan.”
And that isn’t just because it’s easier to get better terms from landlords as other retailers go bankrupt. Frankfort told Reuters the retail bankruptcies have had no near-term impact on Coach’s leasing arrangements, though the company should be able to get better terms over the midterm.
Like other retailers, Coach is also managing expenses. While there is not a hiring freeze, the company is tightly managing recruitment of new personnel through a “hiring frost,” Frankfort said.
Ahh, the first frost of the season. Can Christmas be far?
Also in the basket:
Ferragamo says uncertain on Q4, no IPO hurry
Brinker quarterly profit falls on weak demand
Owners say franchisers are passing on more costs (WSJ)
Fashion trends toward Obama in presidential race (WWD, subscription required)
Check out the latest retail scanner data.
The data, compiled by ACNielsen, show what consumers are buying and what they are taking a pass on.
According to J.P. Morgan’s take, the data show that shoppers are still scouring stores for ways to save money.
“The general themes remain consistent this month: sales growth is being driven by price, private label is gaining both dollar and volume share, and volumes continue to decline overall (likely due in part to a migration from measured channels to unmeasured channels such as Walmart),” J.P. Morgan analysts said in a research note.
Oh, that last part might be a bit important – that bit about unmeasured channels.
Not all stores are measured by Nielsen and competitor IRI. And some of those stores are the ones consumers are heading to in droves in what many economists say is a U.S. recession. Think Walmart and dollar stores, for example.
Some food companies say they expect to ship fewer products after raising prices in a weak economy. Hershey said yesterday that it expects volume to fall, for example.
That said, sales are still up for many food makers, helped by sharp price increases put in place to combat commodity costs that soared to unprecedented levels.
But lower-priced private-label products (or store brands) are also gaining market share. So the balancing act continues as food makers try to keep prices high but at the same time, need to ensure the price hikes don’t result in too much lost volume.
In yet another twist, many commodity prices are now falling. That could lead to lower prices from store brands as retailers try to get more customers in the stores and lure them with lower prices.
Also in the basket:
Housing starts plunge
Mexico’s Modelo not looking to buy back stake
Sonic posts lower quarterly profit
Check out Credit Suisse going to camp.
Credit Suisse retail analysts have divided retailers into four camps, essentially picking what they see are winners and losers in what they call a “deep consumer recession” that will continue through mid 2009.
That weakness will lead to consolidation in the industry, which will be a plus for the leading retailers, the analysts said in a research note.
Among the winners: Home Depot, Lowe’s, PetSmart and Dick’s Sporting Goods. All those stocks were upgraded to “outperform” from “neutral.”
“Broken franchises” include Sears, Borders and Office Depot.
The other two camps are market share leaders where the stocks do not yet reflect the potential downside, including Barnes & Noble; and special situation stocks like OfficeMax that seem cheap even if they are not the best positioned companies.
Check out the cool and wet weather that hit U.S. retailers in September as the month will go into the books as the fifth coolest in the last seven years and much cooler than last year, according to Planalytics Inc, a business weather tracking company.
While the mean September temperature in the 96 largest U.S. metro areas fell about 4 points from last year to 64.2 degrees, retailers selling rainwear (demand up 29 percent based purely on weather), pants (up 13 percent), dehumidifiers (up 10 percent) and hot cereal (up 2 percent) benefited, Planalytics said.
Check Out over 71 percent of affluent consumers, or 10 percent of American families, saying the U.S. real estate and banking crisis is affecting their sense of financial security and the value of their assets.
The poll, conducted by American Express Publishing and Harrison Group, says nearly 6 in 10 survey respondents are worried about running out of money, including 48 percent of America’s wealthiest families. That’s up from 35 percent in April. The survey was conducted Sept. 19-23 and included 614 people with a median income of $325,000.
It’s Christmas already at Macy’s and yes, indeed, the holiday is on sale.
More than a month ahead of Halloween, the U.S. department store chain has dragged out its colorful collection of ornaments, baubles and beads and discounted the price by 25 percent.
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.