Retailers, consumers and prices
from Raw Japan:
Japan is back in deflation, and price falls look like gathering pace as shoppers' bargain-hunting leads stores to cut prices further to weather the worst retail slump in decades.
Retailers large and small reported hard falls in quarterly profits last week, and the few bright spots were focused on those drawing in thrifty shoppers with their cheap but well-made goods.
Fast Retailing tops the list, as its Uniqlo stores thrive in tough times by selling T-shirts for $10 -- that's cheap here -- and other clothing at similar bargain prices. The company is also seeing strong sales growth at its other basic apparel chain g.u.
g.u., the cut-rate sibling of already-cheap Uniqlo, had a low profile for years but shoppers started flooding in after it slashed prices across the board and started flogging $11 jeans and $5 T-shirts this year.
Tim Conder, an analyst with Wells Fargo Securities, said toy shares continue to offer the best “risk/reward” as those in his coverage, like Mattel, Hasbro and RC2 Corp, continue to gain relative market share.
“Despite on-going consolidation among retailers and investor concern about growing major retailer ‘clout’ via pricing pressure and private label toys, major toy manufacturers have gained share. Why?” Conder asked in his note.
Check out the expected weak May sales in the U.S. retail landscape.
Despite Memorial Day sales, warmer weather and deals such as $1 flip-flops, most U.S. retailers are expected to report declines in same-store sales in May as shoppers kept hunting for bargains in the recession.
Only eight of 30 retailers are expected to post growth in May sales at stores open at least a year when companies report results this week. Walgreen kicked things off with a 1 percent increase, but that was below what analysts had expected due to weaker-than-expected sales at its pharmacy counters.
Ever walked out of an out-of-business sale hoping to return when the discount gets even deeper? Ever found your much-desired bargain-priced pair of shoes or television set already snapped up by an early bird?
With so many U.S. retailers going out of business and many having liquidation sales (Circuit City, Goody’s and Linens ‘n Things are three recent examples) savvy consumers should prepare in advance to get a good deal amid all the chaos.
Why do this? The Wall Street Journal offers some possibilities:
“Sounds like Moody’s may be trying to get out in front on defaults, given they were perhaps a little behind on subprime mortgages and commercial mortgage-backed securities,” said David Resnick, managing director at investment banking firm Rothschild Inc. which works on many corporate bankruptcies and restructurings.
Check Out unemployment’s strain on consumers’ wallets.
The U.S. Commerce Department said consumer spending contracted 0.6 percent in November, the fifth-straight monthly fall. Incomes shrank 0.2 percent. A separate report showed initial claims for jobless benefits last week reached the highest level in 26 years.
Not only are they thinking twice about shopping, consumers are also losing faith in gift cards, according to the America’s Research Group/UBS 2008 Christmas survey.
While such cards were among the top gifts for holiday 2007, consumers this year are worried that stores could slip into bankruptcy and leave gift card recipients out in the cold.
Employees interviewed by Reuters correspondent Chelsea Emery at Circuit City’s Paramus Towne Square, New Jersey store seemed resigned to difficut times ahead. The store is not among the 155 slated to close and employees who work there declined to give their last names.
With mall traffic likely weak for the remainder of the year and uncertainty lingering in the financial markets, analysts at CL King say that even with inventory reductions across the board they don’t yet see a light at the end of the tunnel.
“We believe the macro situation has fallen further with worse-than-anticipated negative data points on employment, housing, car sales, investment portfolios, etc.,” CL King wrote in an analyst note.