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: Retail analysts mixed on industry outlook
Check out Wall Street analysts having mixed views about different areas of retail.
Eric Beder of Brean Murray, Carret & Co raised his rating on long-suffering Abercrombie & Fitch to Hold from Sell, noting that the stock is currently trading 2 percent below his previous price target. With investors now assuming weak same-store sales and inventory overhang, and with international growth somewhat lower than expected, Beder said the risk/reward potential has improved enough for him to raise his rating.
“That said, we do not see the potential for a turn in (the second quarter),” Beder said in a research note.
Meanwhile UBS analyst Roxanne Meyer said her latest store check at Abercrombie revealed a big year-over-year uptick in the breadth of promotions. She said about 60 percent of the men’s merchandise and about 75 percent of women’s merchandise was on promotion, up from 30 to 35 percent a year earlier.
“We saw a meaningful amount of men’s cargo shorts and women’s dresses marked down,” Meyer said.
Despite the weather being better than it was last year, Meyer said sales trends have been choppy in June, with about half the retailers she covers seeing increased promotions. Aside from Abercrombie, she said American Eagle, Gap, J Crew and Ann Taylor LOFT stores had bigger promotions than last year.
Top U.S. retailers will give us all a better sense of how things are going when they report June sales next Thursday, July 8th.
Check Out Line: Shrinkage is shrinking
Check out how shoplifting rates are easing amid economic signs of life.
As severe economic pressures subside, U.S. retailers are noticing a slight decrease in merchandise losses, a.k.a. ”shrinkage,” according to the National Retail Federation. Preliminary results of the group’s latest survey show that shrinkage decreased to 1.44 percent of retail sales in 2009, down from 1.51 percent in 2008.
According to the survey, retailers lost $33.5 billion through lost merchandise last year, down from $36.5 billion in 2008.
“Retailers lose billions to shoplifting, internal theft and other types of criminal activity every year, so it’s encouraging to see these small successes when it comes to shrink rates,” said NRF senior asset protection advisor Joe La Rocca in a statement.
Employee theft was the biggest culprit last year, accounting for $14.4 billion in losses, or 43 percent of the total. Shoplifting accounted for 35 percent of the losses, or $11.7 billion, while administrative errors accounted for 14.5 percent and vendor fraud 3.8 percent.
But just because there was a little less fraud, don’t think retailers are out of the woods yet –
A new survey by BeemerReport.com found that over half of the American investors in the stock market, who were also pessimistic about the market’s trend following the European credit crisis, expected to cut back on all spending throughout the summer months. Of those with school age children, many said they may spend 25 percent less for back-to-school apparel if the market does not rebound quickly.
Goal! but no sales, as World Cup distracts shoppers
From our apparel correspondent Nivedita Bhattacharjee:
Financo’s president Bill Susman identified an unlikely rival that could hamper retail sales all over the world in the coming months – the 2010 FIFA World Cup.
As if jittery financial markets, oil spills and debt crises are not enough, retailers will soon have to fight the World Cup to entice customers, many of whom will be esconced in front of their TV sets as the most popular soccer tournament kicks off later this month.
“Retailing for July and part of August will be globally messed up – it’s called the World Cup,” said Susman, president and chief operating officer of the investment banking boutique, during an interview at the Reuters Global Luxury Summit.
“People are going to watch TV and it will change patterns. And I think for Europe particularly, people, if they are feeling a little poorer, may stay home and watch soccer (rather) than shop,” said Susman.
(Photo:Reuters)
Check Out Line: Retail earnings present a mixed bag
Check out U.S. retailers posting better-than-expected profits but seeing their shares fall.
Kohl’s Corp on Thursday posted quarterly profit that rose more than Wall Street had expected. But the mid-tier department store operator’s shares fell nearly 3 percent after its forecast for the second quarter and full year fell short of analysts’ estimates.
“Consumers appeared to be a little more confident in their spending, but remain focused on value and ways to make their dollars go farther,” said Kohl’s CEO Kevin Mansell in a statement.
Meanwhile, specialty retailer Urban Outfitters reported that quarterly profit rose 72 percent, but its earnings per share only topped Wall Street estimates by a penny and its shares fell 3 percent.
Also in the basket:
Metro CEO links chiefs to Bayern’s deadly duo
Eckhard Cordes likes football. The chief executive of the
world’s third largest retailer Metro likes German Bundesliga
club Bayern Munich, to be more precise. And he likes giving
examples. “I tend to give examples, sometimes silly
examples,” he admitted at the company’s annual news conference
on Wednesday in Duesseldorf, Germany.
Check Out Line: Retail’s Monday morning quarterbacks
Check out the various descriptions of the 2009 holiday shopping season, which unofficially ended on Friday with Christmas. Analysts’ Monday morning reviews range from ”adequate” to “quite pleased”.
“All in all … Holiday 2009 was good enough, but has a long way to go with catching up to what the consumer really wants,” said NPD Group analyst Marshal Cohen. “And if the economy is truly to recover, not only does the housing and credit market need to recover, but the innovation market for retail products must recover as well.”
But some retailers did show improvements in product assortments, according to UBS analyst Roxanne Meyer.
Meyer said women’s clothing chains gave their best showing in years in terms of product and promotions, with Urban Outfitters, J Crew Group and Chico’s FAS Inc on top, given their strong product assortments and lean inventories which allowed them to avoid steep, profit-sapping discounts.
“Despite delayed purchasing and storms, the majority held the line on promotions,” Meyer said.
Independent retail analyst Jennifer Black said retailers had back-up plans and were prepared this year — in stark contrast to last year, when the financial crisis erupted in September and quickly slammed the brakes on consumer spending, leaving retailers with heaps of unsold merchandise.
“Companies we believe had a great holiday include Nordstrom, Limited Brands, Chico’, J. Crew, Lululemon and Urban Outfitters to name a few,” Black said.
US housing will continue to fall in ’10 as strategic foreclosures grow from the 25% of total they are today. Read a wild California foreclosure story at http://storyburn.com
Check Out Line: Gimme, gimme, gimme cash!!
Check out what kids want for Christmas.
Okay, if you are reading this item on Dec. 24 and seriously looking for an idea of what to buy a kid for Christmas, your choices are likely somewhere between “The Perry Como Holiday CD Box Set” and a “Really, Stop-Tickling-Me-It-Isn’t-Funny-Anymore-Elmo.”
But no worries. Kids between ages 6 and 18 are liking cash and gift cards even more this year, according to a new survey.
The percentage of boys who said they prefer to receive a gift card or cash for the holidays rose to 12.3 percent this year from 7.9 percent in 2008, according to a survey by the YouthBeat division of Chicago based C&R Research.
Girls are even more accepting of cash or plastic, with 22.5 percent saying they want money or gift cards this year, up from 19 percent a year earlier.
In the online survey of more than 1,200 kids, almost 80 percent said they had received a gift card, up nearly 10 percent from 2008.
And guess what? You have have a better chance of making a kid happy with a gift card than by trying to guess what they want for a present. (You don’t REALLY think they want socks, do you?) Kids prefer a gift card by a two-to-one margin over a gift picked for them, the survey said.
Buy your kids nice clothes so they can get a solid job during high school, once they prove themselves then give them cash. If you give them cash with out helping them create a good work ethic, then they will not understand that money is earned by working hard. The best gifts you can give a young kid is Atlas Shrugged and Think and Grow Rich. Teach them young and they will not look for others to create their livelihoods for them. Money, in this reality, is survival.
Check Out Line: Macy’s starts retail earnings parade
Check out Macy’s disappointing fourth-quarter forecast.
Apparently, the Thanksgiving Day Parade may be the highlight of the quarter.
The department store chain operator forecast fourth-quarter profit below analysts estimates and its shares fell Wednesday morning.
The retailer also expects same-store sales to drop 1 percent to 2 percent in the quarter. While that is less of a decline than the full year, it is also off a pretty easy comparison. Same-store sales fell 7 percent in the year-earlier fourth quarter, when the country was waist deep in a recession and credit crunch.
Macy’s, which grew through acquisitions into a national brand, has shifted its focus to offering local items in specific markets in order to try to boost sales.
So far, that might have staunched the bleeding. But most department stores are still out of favor as consumers stay at shops like Wal-Mart in order to save money.
But hey, Wal-Mart doesn’t have the cool balloons in Manhattan in November, does it?
Check Out Line: Jonesing for another earnings beat
Check out which company Wall Street keeps underestimating.
It’s Jones Apparel. The retailer and apparel maker once again “reported a much higher-than-expected” quarterly profit. Last quarter, Reuters said the company “beat estimates handsomely.” The quarter before that it was “easily beat estimates.”
Heck, even in the fourth quarter, when almost all retailers and apparel makers were hammered by the recession and credit meltdown, the company reported a “smaller-than-expected” quarterly loss.
Aside from demonstrating that Reuters has several different ways of saying “big earnings beat,” the reports also raise this question: “Why does Wall Street keep missing the mark on Jones?”
One reason could be that the company itself still cannot quite figure out if business is up or down.
For the current quarter — which includes the all-important holiday season — it expects same-store sales to range anywhere from a drop of 2.5 percent to a rise of 2.5 percent.
So come February, you might see the words “eclipsed Wall Street Estimates” connected with Jones earnings.
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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.