Shop Talk

Retailers, consumers and prices

Check Out Line: Short-Circuit City

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Check out Circuit City’s bankruptcy filing.
 
It’s been expected for some time, but Circuit City on Monday said it filed for Ch. 11 bankruptcy reorganization.
 
The thing is that there is some doubt about whether reorganization will work.
 
“We would note that we have not seen a consumer electronic retail(er) successfully reorganize in Chapter 11 in our 24 years in this space,” Credit Suisse analyst Gary Balter said. 
 
“One reason is that consumers become reluctant to buy extended service warranties from chains in bankruptcy and ESP’s are a key part of the profit formula,” he said in a research note.

Tweeter filed for bankruptcy protection in June 2007 and was later bought by Shultze Asset management.  But that chain filed for Ch. 11 again last week.
 
There are a lot of places out there to buy flat screen TVs, DVD players, video games and the like and that competition from Wal-Mart, Best Buy and others is one thing that put pressure on Circuit City.
 
Circuit City lost money in five of the last six quarters and as the global credit crunch pinched suppliers, those suppliers have tightened credit terms.
 
Circuit City already said it is shutting down 155 stores.  But the bankruptcy filing is a sign the company didn’t even have time to wait through the key holiday shopping season before reorganizing.  Or the weakened economy could just mean that there wouldn’t have been enough demand to matter.
 
So Circuit City hits the reset button and hopes it isn’t “Game Over.”
 
Also in the basket: 
 
Hard times for European luxury firms (WWD, subscription required)
 
McDonald’s Oct. same store sales rise 8.2 pct
 
Tesco shares fall on Asia slowdown worries

(Reuters Photo)

Check Out Line: Warehouse of woe

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Check out the falling same-store sales at Costco.
 
Okay, October was a pretty rancid month for most retailers, and most did worse than Costco.
 
But the warehouse club operator had a 1 pct same-store sales decline in October that was its worst performance since Thomson Reuters began tracking such data for Costco in 1997.
 
Warehouse clubs had been holding in with cash-strapped consumers looking to save money with bulk purchases of toilet paper, food and other essential items.
 
But consumers have really cut back on the nonessentials, so sales of items like computers, toys and jewelry suffered.
 
Wonder how the 1,000-count bottles of aspirin are selling as consumers cope with the economic headache.

Also in the basket:
 
Anheuser profit meets view; silent on deal
 
For Wal-Mart, a Christmas that’s made to order (N.Y. Times)
 
President Obama’s Era: Low-Key and Modern, From Society to Style (WWD, subscription required)

Check Out Line: Staples sees good times ahead

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Check Out Staples saying its third-quarter profit will top Wall Street estimates and backing its long-term forecast, all in the midst of a global economic crisis.

Staples is holding a conference today with investors. They will no doubt be wondering how the world’s largest office supply retailer plans to convince small business owners and consumers to buy more office supplies in a troubled economy that has made them cut back buying computers, printers and copiers in favor of smaller-ticket items like ink, toner and paper.

Check Out Line: Yummy profits for food companies

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Check Out the joy at Kraft and Kellogg.

Both Kraft, the largest North American food maker and Kellogg, the world’s largest cereal company, posted third-quarter profits that topped Wall Street’s expectations thanks to price increases and new items. The results are yet another nod to the fact that while you may shun clothes, jewelry or furniture during crunch times, you still gotta eat.

But Chief Executive Irene Rosenfeld of Kraft, with brands from its namesake cheese and Maxwell House coffee to Oreo cookies and Toblerone chocolates, warned that tight credit conditions could cause some retailers to liquidate their inventories, which could affect product shipments in the fourth quarter.

Check Out Line: Wal-Mart meets the analysts

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Check out Wal-Mart meeting with analysts as a global recession looms.
 
The company has done well in 2008 as U.S. consumers flocked to its lower-priced goods while the economy slowed.
 
But now investors want to see if the company can keep it going in 2009.
 
Analysts, who meet with the company Monday and Tuesday, want to see if the world’s largest retailer further trims its store opening plans.
 
Wal-Mart will likely continue to benefit — at least compared with other retailers — as consumers keep a tighter grip on their wallets while the economic slowdown spreads around the world, analysts said.
 
But they note that when consumers have less money, they also have less money to spend at Wal-Mart.
 
Also in the basket:
 
Pilgrim’s lenders extend credit waiver, shares up
 
Limited to launch Bendon intimate apparel (WWD, subscription required)

Alberto Culver sales beat Wall St view

(Reuters photo)

Check Out Line: The wrong kind of Black Friday

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Check out aaarrrrggggghhhhh!!!!!!!!!!!!!
 
Global markets took the meltdown up another notch on Friday, with Japan’s Nikkei index ending down 9.6 percent and European shares down 8 percent. U.S. stock futures market fell so much they had to be frozen at several points overnight.
 
It’s the kind of Black Friday retailers don’t want to see.
 
Consumers are pulling back in droves and Liz Claiborne is the latest to feel it.
 
The company lowered its full-year earnings forecast and also said it plans to cut capital spending in half in 2009.
 
Comparable net sales also fell 15.9 percent percent in the third quarter, the company said.
 
“Traffic in malls and street locations is off in every region, including Europe,” CEO William McComb said. “Consumer confidence has clearly been impacted in a way we hadn’t seen earlier this year.”
 
The department stores that carry Liz Claiborne’s clothes dramatically increased promotional spending in September, he said.
 
By the way, it’s just 62 days until Christmas.
 
Also in the basket: 

Credit crisis may lead InBev to revisit Anheuser deal
 
Palin v. Palin (WWD)

Fortune Brands profit tops view; cuts outlook

Check Out Line: Who needs foreign tourists? Luxury chains have Palin!

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palin11.jpgCheck Out Alaska Gov. and hockey mom Sarah Palin, who’s not only John McCain’s vice presidential pick, but a luxury fashion maverick.

The Republican National Committee has spent more than $150,000 since late August to outfit Palin and her family in the fanciest of duds from department stores like Saks and Neiman Marcus, says politico.com.

Check Out Line: Christmas, anyone?

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scrooge.jpgCheck out the holiday cheer coming from Hasbro’s CEO.
 
Remember when everyone said luxury stocks were more immune to a recession? That was before the housing slump, the credit crisis and the meltdown on Wall Street. Now the Dow Jones Luxury Index is down 52 percent from a year ago.
 
Remember when food companies said they were a little less vulnerable to an economic downturn because people still have to eat? Well, people still need to eat, but lower-priced store brands have been taking market share and food shares, as demonstrated by the Standard & Poor’s Packaged Foods index falling 11 percent in the past three weeks.
 
Well, now the next test case might be the idea that people will still keep spending on toys for their children during Christmas.

“We still believe that Christmas will come for consumers and retailers this year and our retailers have agreed that toys and games are more recession resistant than other discretionary spending categories,” Hasbro CEO Brian Goldner said during a conference call with analysts.
 
Hasbro beat analysts quarterly profit estimates, while higher costs caused Mattel to miss.
 
But what kind of Christmas will it be? Christmas came for the Cratchits in “A Christmas Carol,” but while it was full of good feeling and cheer, it was a tad light on presents, at least before Scrooge had his epiphany.
 
Will Christmas for toymakers be commercial, or Dickensian?
 
Also in the basket:
 
U.N. agency says crisis to cost 20 million jobs
 
Circuit City weighs broad cuts (WSJ, subscription required)
 
Adrenalina bids for PacSun (WWD, subscription required)

Happy shopping, and watch out for mall shootings

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mall-shooting.jpg    The holidays are right around the corner, and the National Retail Federation has visions of tinsel, mistletoe and mall shootings on their mind.
    The NRF and International Council of Shopping Centers on Monday released guidelines to help retailers prepare for shooting incidents at shopping malls and retail stores.
    A joint effort with the U.S. Department of Homeland Security and retailers, the plan deals with an “active shooter,” or individual actively engaged in killing or attempting to kill people in a confined and populated area.
    “We live in a dangerous world and the stakes keep getting higher,” say the guidelines.
         The guidelines warn that a shooter may be a troubled current or former employee, or related to an associate with domestic problems.  
    They also encourage employees to create an escape plan and be aware that law enforcement first responders may show up in bulletproof vests and Kevlar helmets and be carrying rifles, shotguns or handguns, and might use pepper spray.  
    Only as a last resort when your life is in danger, the guidelines say, “Attempt to incapacitate the active shooter. Act with physical aggression and throw items at the active shooter.”  

    Some facts of note:
    – In 100 percent of the shootings the suspect was male.
    – In over 71 percent of the incidents, the shooter was between the ages of 15-25, with 20 percent ages 50-60.
    – In 24 percent of the shootings, the shooter committed suicide before police were able to respond.
     – Active shooter situations are often over within 10 to 15 minutes.    

Check Out Line: Credit Suisse picks retail winners and losers

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lowe.jpgCheck 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.

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