Retailers, consumers and prices
Although retailers have already begun to aggressively advertise deals on grills, televisions and other toys many dads dream about, the National Retail Federation‘s annual survey — conducted by BIGresearch — says they’re out of luck. Consumers are expected to spend $9.4 billion on gifts for dad, or an average of $90.89 per person, down slightly from $94.54 last year.
Let’s not forget that last year, the headline from the NRF survey said “Dad takes a back seat to Gas and Food costs.” That’s right, before one of the most dramatic financial meltdowns in generations, Americans still weren’t planning to spend much on ol’ pop. Back then, the cost of filling the family’s stomachs and getting them around town pushed the expected average spending down from $98.34, or $9.9 billion overall.
If these trends continue, it seems likely dad’s Father’s Day returns will have eroded much like those of Wall Street.
Check out the surprising profit at Sears.
Yes, that’s right – Sears. The department store operator that also owns Kmart. The holding company controlled by hedge fund manager Edward Lampert that was supposed to be a real estate play, before the real estate market tanked.
Well, Sears surprised analysts with a first-quarter profit. Margins improved and Kmart same-store sales only fell 2.1 percent, less than the 3.7 percent decline posted by rival discounter Target. (Though that was helped by Kmart including a footwear business that it had leased in the past.)
So the stock is trading at about $60 Friday. Is that too pricey?
Credit Suisse analyst Gary Balter thinks it is.
“The stock is not cheap even if one assumes that results can be sustained, and the continued loss of market share should gradually catch up to margins,” Balter said in a research note.
Still, given the sentiment on Sears’ retail operations just a year or so ago, Balter does give Lampert props for improving performance and driving improved margins through better inventory management and sourcing.
“The investment question for the name should no longer be will Sears make it, a line of thinking that we have not subscribed to due to strong cash flow and quality balance sheet, but what is the proper value for stock?” Balter wrote.
For some investors, just thinking in those terms is a positive sign for Sears.
Also in the basket:
LED pumps life into flat-screen TV market
Gap, Aeropostale, PacSun top expectations
Axe body products puts its brand on Hamptons club scene (N.Y. Times)
Recession turns malls into ghost towns (Wall Street Journal)
Check out Target maintaining retail margins.
That counts as a win in retail these days. The discounter was able to better manage markups and markdowns than last year, helping it keep gross margin steady, even though consumers are spending more on less profitable staples and less on discretionary items.
The company soundly beat analysts earnings estimates for the quarter. But profit still fell 13.3 percent in the quarter, not necessarily a good thing when you are in a proxy fight with an activist investor.
The story from Target was the same as the story from most retailers during this recession. Sales are sluggish or falling, they are controlling inventories and trying to rein in expenses.
AnnTaylor had the same story and reported a smaller-than-expected loss.
But it’s outlook was also cautious as the recession keeps women from buying work clothes and luxury apparel.
The question is, if consumers keep on the sidelines, how much more cost cutting can retailers do to limited the bleeding.
Also in the basket:
Tween brands posts narrower-than-expected Q1 loss
BJ’s Wholesale profit tops view; forecast raised
Sodas a tempting tax target (N.Y. Times)
Home Depot, the top specialty home improvement retailer, said its quarterly profit was 35 cents per share in the first quarter, excluding items, topping Wall Street estimates for profit of 28 cents.
U.S. retail sales slumped for the second straight month, coming in weaker than analysts had expected due to sluggish gasoline and electronic goods purchases. Meanwhile, U.S. foreclosure activity in April jumped to a record high, further pressuring home prices and making a recovery tougher.
Fashion company Liz Claiborne posted a deeper-than-expected quarterly loss as retail sales remained weak in the recession. The owner of Juicy Couture, Kate Spade, Lucky Brand and Mexx labels is cutting jobs, scaling back expansion and offering more lower priced items to combat the slowdown.
Check out a glimmer of hope on the employment front.
Planned layoffs for U.S. firms fell in April to their lowest levels since last October, according to a report from outplacement consultancy Challenger, Gray & Christmas.
Okay, layoffs are still at recessionary levels, with U.S. employers announcing plans to cut 132,590 jobs in April.
But CEO John Challenger says the fact that they are falling could mean that employers are a little more confident about future business conditions.
If employers start feeling more confident and stop laying off people, that could spur more confidence in employees and eventually get them to spend more at retailers, which, after all, is what this blog is about.
In a report by Discover, the credit card issuer, the number of consumers saying the economy was getting better was 23 percent in April. While that might not seem like much, it is still 8 percentage points better than in March.
Also, 51 percent of consumers said the economy was getting worse, down from 61 percent in March.
“Consumers continue to approach their spending with caution, albeit a little less so in April,” said Julie Loeger, senior vice president of brand and product management for Discover Financial Services. “As they grow more confident in the economy and their finances, consumers may boost their spending; which should help with an economic recovery.”
Are these the “green shoots” of an improving economy, or just optimism waiting to get shot down?
Also in the basket:
Carlsberg Q1 doubles on Eastern Europe gains, cost cuts
In Target tussle, a store becomes a battlefield (N.Y. Times)
Barneys aiming to close two stores (Wall Street Journal)
(Reuters photo of job fair)
Check out the “Downturn Generation.”
That’s what data tracking firm Information Resources Inc is calling a “new generation of Americans (that) is adopting practices similar to Depression-era shoppers, implemented both to weather the recession and to keep a close eye on spending long after the recession ends.”
Basically, we want everything on sale. And that means lots and lots off the original price. The New York Times today pointed out how retailers are pushing deep discounts of 50 percent or more to attract shoppers.
According to IRI’s study, more than 69 percent of consumers surveyed say they are more likely to look through retailer ads for deals and nearly 82 percent are more likely to look for sale prices once in the store.
Also, it’s not just one store they are looking at. Fifty-nine percent visit multiple stores for the lowest prices, and 42 percent of those shoppers will continue to do so into the future.
Just under two-thirds (65 percent) say price is becoming more important than convenience in brand purchases.
Oh, and along with this new frugality comes another benefit: sharing is in and for some people it could stay.
In an aggressive push to lower costs, many U.S. chain stores are asking their mall-owning landlords for a break on the rent. But they are rarely getting it – at least not from Developers Diversified Realty Trust, which owns more than 700 shopping centers, typically anchored by big box and discount department stores.
The real estate investment trust reported better-than-expected quarterly results on Friday, and said it executed leases for nearly 2 million square feet in the latest quarter.
Check out General Growth Properties’ long-anticipated bankruptcy filing.
Several retailers have filed for bankruptcy in recent months — now one of their landlords is doing the same.
General Growth is the second largest U.S. mall owner, with a portfolio that includes Faneuil Hall marketplace in Boston and Fashion Show in Las Vegas.
The company has been guaranteed some debtor-in-possession financing from William Ackman’s Pershing Square Capital Management.
The company listed total assets of $29.56 billion and debts of $27.29 billion. Some retailers on its list of creditors include Sephora, which is owed $1.5 million and Borders, which is owed $1.4 million.
Unlike some retailers that have been forced to liquidate while in bankruptcy, General Growth said it is seeking to emerge as quickly as possible from bankruptcy with a reorganization that preserves its national business.
Also in the basket:
Borders to lose directors, scrap reverse split
Jarden sees strong Q1; expects to beat view in ’09
Mom seen taking a hit on Mother’s Day
Video prank at Domino’s taints brand (N.Y. Times)
Fear and greed have sales of guns and ammo shooting up (Wall Street Journal)
(Reuters photo at General Growth’s Glendale Galleria in California)
The U.S. government’s $787 billion emergency economic stimulus, passed into law in February, aims to create or protect up to 3.5 million jobs while putting more money in consumers’ hands in the hope that they will spend it and boost the economy.