Shop Talk

Retailers, consumers and prices

Why retailers can expect modest holiday spending growth

As the 2012 race to the holidays kicks off, shoppers in America are experiencing economic sobriety.  With 23 million people still looking for work, home prices still down, and those with jobs holding little hope for salary increases, the season is shaping up as a time of controlled spending. Without question, consumer purchases will be made through a lens of affordability.

Still, in the past few weeks I have visited with small groups of shoppers in California, Phoenix, Dallas, New Orleans, northern Pennsylvania, and finally New York City; I found a consensus of hope as the holiday season approaches, and a feeling of thanks at having survived another tough year.

American consumers have grown tired of continuing signs of economic uncertainty. My conversations with American shoppers, as well as earlier consumer research by Booz & Company, indicated several changes that will set the stage for a holiday season that’s focused on affordability:

1. In almost all of our conversations we asked the following question “What will be different about this holiday season over past seasons?”  The overwhelming response was bringing together family and friends to celebrate.

Check Out Line: Surprise, surprise, a discount retailer is doing well

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dg1Check out the strong quarterly profit at discount retailer Dollar General.

The company, which prices most of its merchandise below $10, posted a stronger-than-expected profit thanks to bargain-seeking consumers who spent more per visit. Company executives talked of building sales momentum during the quarter and sales results in the current three-month period were encouraging.

As a result, Dollar General, which has received a boost from high U.S. unemployment rates, raised its full-year earnings forecast.

Check Out Line: How Lowe’s can you go?

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lowes1Check out the weaker-than-expected earnings at Lowe’s.

Giving fuel to pessimists about the U.S. economy, Lowe’s, the No. 2 home improvement chain behind Home Depot, posted a quarterly profit and sales that missed analysts’ expectations, and also forecast lackluster earnings in the current quarter, underscoring “limited visibility into near-term demand.”

Sales at companies like Lowe’s had benefited immensely from the homeowner tax credit and cash for appliances programs, but now more and more uncertainty seems to be the watchword.

Check Out Line: A decline in weekly sales numbers

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shop1Check 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.” 

Also in the basket:

Dr Pepper Snapple sets new $1 bln share buyback

Calif Pizza raises Q2 profit veiw, shares up

Borders to sell stationery maker for $31 mln

Nissan says Hitachi delay may hit US, Mexico output

(Reuters photo)

Check Out Line: Easter bounce

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Check out how high March retail sales bounced off last year’s weak results — and how April sales are expected to falter.

bunnyMarch same-store sales topped expectations for retailers ranging from teen-focused stores to discounters and department stores, helped by an early Easter, warmer weather and a recovering job market.

Check Out Line: Magic 8 ball says better year for retail

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shop1Check out a prediction for increased U.S. retail sales this year.

The National Retail Federation said U.S. retail sales should rise 2.5 percent this year, signaling that stores have made it through the worst of the downturn as improvements in the housing and job markets bolster shoppers’ confidence.

The projected increase would be a step up from a 2.5 percent decline last year and 1.3 percent increase in 2008, NRF said.

Black Friday: The Ecstasy and the Agony

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black-friday-targetThe annual ritual began with all the proper signs. Shoppers lined up before midnight on Friday. Some wore pajamas, others imbibed hot coffee or alcohol. Store managers straightened rows of sweaters and blew dust mites off flat-screen TVs while their doors remained closed. 
    
Then the rush started.
There were fights over toy hamsters, a clamor for laptops under $500 and even a leather jacket or two was purchased. Retailers prayed and tried to banish the ghosts of a terrible 2008.

Traffic was strong. Americans left malls with more shopping bags in their hands than a year ago. And yet.

Check Out Line: Frugal fatigue?

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bootsplaid1Check out what women buy when they get tired of being a frugalista: boots, plaid and outerwear. 

Those were some of the products that helped October U.S. retail sales improve from a year ago, when the unfolding financial meltdown had shoppers fearing a second Great Depression.

Check Out Line: Warning! Murky outlook ahead for retailers

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shop11Check out the latest outlook on October sales at U.S. retailers.

While most industry experts expect a 1.2 percent rise thanks to the weather gods and easy comparisons, the forecast doesn’t really say it all.

For instance, while sales trends have improved from a disastrous October 2008, data on the economy and consumer spending gives mixed signals and indicates shoppers remain cautious.

Check Out Line: Young professionals trimming turkey-time travel, spending

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turkey1Check out a survey showing that younger U.S. consumers are trimming travel plans as well as turkeys during Thanksgiving.
    
More young professionals (37 percent) are adjusting their Thanksgiving travel and spending plans than the affluent and general population (both 30 percent), according to a survey by American Express. Young professionals are defined as less than 30 years old, having a college degree and a minimum annual household income of $50,000.
    
The young guns also are pulling back in other areas:
 
* 11 percent of young professionals plan to drive instead of flying, compared to 7 percent of the general population and 6 percent of the affluent, who are defined as having a minimum annual household income of $100,000. 
    
* 8 percent of young pros plan to shorten their stay for the Thanksgiving holiday weekend, compared to the affluent and general population (both 3 percent). 
 
* 7 percent of young pros will use rewards points, miles and special offers to offset the cost, versus 4 percent of the affluent and 3 percent of the general population.
    
Overall, American Express found 30 percent of U.S. consumers plan to adjust this year’s travel plans for Thanksgiving — historically one of the busiest travel days of the year — but only 21 percent expect those expenses to decline from last year.
    
Those who are changing their plans said they will rely more on travel by car, stay for a shorter time and cash in rewards to help pay for holiday trips as they become more selective amid the high unemployment and soft housing market.

However, in a positive sign, sales at U.S. retailers excluding vehicle sales rose for the second straight month in September, raising cautious optimism consumer spending could support the economic recovery.
    
The American Express survey also showed that the young professionals are cutting back for Halloween, when consumers spent $5.8 billion last year according to the National Retail Federation.
    
* 36 percent of young pros are buying less expensive costumes and decorations.  The rate is 16 percent among the affluent group and 15 percent among the general population. 

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