Shop Talk
Retailers, consumers and prices
Check Out Line: Consumers beware! Rising prices even at Wal-Mart
Check out rising prices even at Wal-Mart.
Pressures created by rising costs have caused even the world’s largest retailer, known for its ”rollback” discounts, to boost the prices that consumers pay for groceries. Wal-Mart Stores raised average prices on supermarket items by about 6 percent in a month, according to a recent J.P. Morgan study in Virginia that compared the prices of 31-item goods sold at its supercenters, and at supermarket rivals Kroger, Safeway, Harris Teeter and Whole Foods. Specifically, the study found that prices at a supercenter in Virginia rose 5.8 percent, the most significant sequential increase since JP Morgan started price comparisons in January 2009. While the world’s largest retailer remains the cheapest among supermarkets, rivals such as Kroger and Safeway are gaining ground, according to J.P. Morgan. Rising costs of raw materials and oil are pressuring companies to pass on costs to consumers with higher prices.
Indeed, clothes makers such as Nike, VF Corp and Hanesbrands are facing the same conundrum. And British baker Greggs said soaring wheat prices were set to push up costs, emphasizing a theme that may be repeated for such food makers as General Mills, Kellogg, Kraft and Sara Lee.
However, the timing is not good as the state of the U.S. economy is still uncertain and unemployment remains stubbornly high, leading many consumers to still be wary about spending. U.S. retailers in July posted weaker-than-expected sales despite increased discounting. Also in the basket:
Wendy’s/Arby’s to expand into Russia
Check Out Line: A smorgasbord of consumer earnings to parse
Check out the smorgasbord of quarterly earnings in the consumer sector.
Among the many companies to report earnings on Thursday were P&G, Burger King, OfficeMax, Colgate, Fortune Brands, Bunge, Kellogg, Safeway and Mead Johnson. As usual, there was something for investors of all stripes.
P&G, for example, posted a better-than-expected profit, helped by its biggest volume gain in more than four years. That would please the optimists.
The pessimists, however, had their news to focus on as the world’s largest household products company, known for its Tide detergent (pictured), also forecast results for the current quarter below Wall Street’s expectations. Go figure.
Burger King reported a smaller profit, blaming severe winter storms during the period for weaker sales in North America, and the CEO said warned that high levels of unemployment and underemployment remained the biggest headwind.
Agricultural processor Bunge posted a weaker-than-expected profit and cut its full-year outlook. OfficeMax, the No. 3 U.S. offices supplies retailer, posted a higher profit as it gained market share and kept a tight lid on costs.
Meanwhile, Fortune Brands, known for alcohol, home products like Moen faucets and golf gear, affirmed its outlook from Tuesday in reporting its stronger profit and said it saw consumers “getting more active,” including stronger-than-expected remodeling activity in the housing sector.
Safeway, Walmart top list of most wanted gift cards
While giving gift cards may have declined in popularity, some are proving quite attention-worthy and can be cashed in for a pretty penny. Online gift card site plasticjungle.com buys gift cards for cash, and then resells them, often for a bit less than the amount left on the card. It also lets people donate cards to charities.
So, what stores are hot this holiday season?
Here are the cards the site is paying the most for — up to 90 percent of the face value:
– Safeway
– Walmart
– Target
– Sam’s Club
In an apparent twist of events, it appears that the famous Walmart multimillion dollar slogan “Always Low Prices” in its internet domain name form AlwaysLowPrices.com, has been sold to its adversary, Target. Target recently commenced using the domain to direct would-be Walmart customer traffic to its own site, Target.com.
While this news has surprised many, it is likely that the original owner of the domain name, internet guru, Brad Morehouse, finally sold the name. According to a statement made by Mr. Morehouse back in 2005, Walmart tried to “strong-arm” him into giving up the domain name. However, in this David and Goliath story, Walmart never succeeded in taking the name as Mr. Morehouse used the “I Can” (ICANN) law to protect his property. Essentially, since Walmart did not register the trademark prior to Morehouse’s purchase date, Walmart could do nothing more.
Other people with the “Always Low Prices” domain variants, such as “.net” and “.org” didn’t fair so well. Walmart forced a blogger by the name of Kevin to discontinue using the domain name “AlwaysLowPrices.net” According to him, Walmart alleged that he was using the slogan to take business from the multi-billion dollar corporation.
Both Brad Morehouse and Walmart marketing executives were unavailable for comment.
Show must go on for Organics…
This year’s All Things Organic conference and expo showcased necessity as the mother of invention. Slumping sales and a weak economy have forced the industry to innovate just to hold onto customers.
In a 2009 briefing on the organic packaged food market, Euromonitor International said the largest threat to the future growth of organic products is price sensitivity among U.S. consumers in the current economic climate.
“In previous years, many consumers were willing to trade up to premium products,” the briefing said. “However, more consumers are looking to trade down, as they can no longer afford to even try some premium products, much less purchase them on a regular basis.”
The response has been for some companies to expand their product offerings, such as Clorox’s Green Works laundry detergent, hitting store shelves this summer, and Rain Organic Vodka’s new lavender flavor.
Others are expanding their reach as they try to drive sales. Safeway’s O Organics line, for example, is now in other grocery chains, such as Albertsons.
Still, people were all smiles, saying that while their sales were down, their companies had still experienced growth. In their eyes, weathering the economic storm means that they’re just that much more prepared for the recovery.
Watch the audio slide show below:
I grow my own organic vegies and fruits, its fun and also saves a lot of money compared to the organic produce sold at the supermarket. Seeds are really cheap and give an excellent return on investment. I never would have thought that going green could be so much fun.
Security cameras can “see” a lot more these days…
Sweethearting (v.) the act of a store employee giving a friend or family member free merchandise by pretending to scan items at the register or by ignoring items in shopping carts.
It is one of the oldest tricks in the book and a big problem for retailers. So big, in fact, that some estimates suggest that “sweethearting” and other types of employee theft account for almost half of all annual retail theft, or $19.5 billion out of $41.6 billion overall.
Massachusetts-based StopLift Inc. says the answer is just waiting to be liberated from all of the security camera tape that retailers typically don’t monitor until something goes really, really wrong.
We’ve all seen the video of outrageous things that can happen in grocery stores, convenience shops, and retail outlets, but the reality is that watching the security feeds from cameras mounted above every register is time-consuming — so most of that video information goes unused.
StopLift’s computer software analyzes camera feeds by reading certain body motions and other signs that tip off sweethearting. From there, it’s up to managers to decide whether training or termination is the right response.
You can see actual “sweethearting” caught by the software on StopLift’s homepage, here.
StopLift said its clients include Big Y and Safeway grocery stores.
Check Out Line: “Insult to injury” for retailers
Check Out one analyst’s list of retail names at risk.
Around this time last year, stimulus checks amounting to more than $100 billion started landing in cash-strapped consumers’ bank accounts, giving them a chance to spend and boosting sales for many retailers.
But this year’s stimulus entails lower withholding taxes and not ”hard checks,” which means “the effects of this year’s stimulus on retailers will be a far cry from 2008,” Pali Capital analyst Stacey Widlitz said in a research note to clients.
As retailers already face thrifty consumers, tough comparisons versus a year ago could put some retailers at risk this time around, adding “insult to injury,” she said.
For example, electronics retailer RadioShack offered consumers a 10 percent discount on purchases over $50 when a stimulus check was used between May 4 and July 12 last year. That along with sales of TV converter boxes helped sales, Widlitz said.
“Beware of tough comps ahead, lack of stimulus promotions and the end of converter boxes in June,” she said in the note.
Widlitz also mentioned discounting giant Wal-Mart Stores, saying the retailer benefited last year from stimulus checks, and ”on top of increasing expectations, investors are not fully factoring in the headwind for May-June.”
There was a study that was released somewhere around 10 to 11 months ago that showed that Wal-Mart could only sustain another 50% inflation, it was pretty hush hush and got about 5 seconds of off beat notoriety… While I initially feel triumph at the thought of the evil giant falling, economically if a machine like Wal-Mart is staring down that barrel, others… well, retailers employee a lot of people even if it is not under the most favorable of conditions. Now take that study and the fact that we are practically begging China to dump a vast quantity of its surplus capital because their currency is to valuable, and you might start scratching your head and wondering how deep this rabbit hole goes! My only real complaint is that I wish that people would finally learn that the easy way out is never the right way out… the old adage, the easy man killed him self at work.
On a side note, if you really get interested in this stuff, you should look at what was being played out by OPEC and the ridiculous gas prices… and Hugo Chavez supplying ridiculously cheap oil to China along with the timings of the Bush administrations lashings of him, you can dig up some pretty interesting ‘coincidences.’ I guess it is hard for one puppeteer to put on the whole dumb show.
Check Out Line: Company profits surprise despite weak sales
Check out consumer-related companies Procter & Gamble, Colgate-Palmolive, OfficeMax, Domino’s Pizza and Sally Beauty Holdings all posting better-than-expected quarterly profits despite weak consumer demand.
P&G and Colgate surprised Wall Street on Thursday, as their efforts to hike prices and cut costs helped offset weaker demand in the recession. Both companies, which are rolling out new products to entice thrifty consumers back to stores, forecast sales growth for the year, excluding the impact of currency fluctuations, acquisitions and divestitures.
Domino’s Pizza reported a better-than-expected profit, boosted by the performance of its domestic franchisees. “Our domestic franchisees outperformed our Team USA stores in same store sales for the first time in many quarters. This is a … a strong indication that our domestic franchise system is starting to regain some positive sales momentum,” Domino’s Chief Executive David Brandon said. Domino’s was not the only company to see bright spots.
Furniture maker and retailer Ethan Allen said the economic environment remains difficult, but that the “retail environment seems to show some indications of improvement.”
And beauty supply company Sally Beauty Holdings reported a better-than-expected quarterly profit on higher same-store sales and its “recession-resistant nature.”
Not everyone beat the Street. Supermarket operator Safeway posted a lower quarterly profit that was below analysts’ expectations, sending its shares down. Still, it wasn’t all bad news for long-term investors. Safeway raised its dividend by 21 percent.
Also in the basket:
No tug-of-war between grocers and food makers-Kroger CEO
Costs for ingredients like rice, wheat and oil are falling, so why are prices for breakfast cereals like Rice Krispies and Special K still rising?
If you want an answer to this question, you aren’t the only one.
Food companies like Kellogg Co, which makes the products mentioned above, say the higher prices are justified because while commodity price inflation has eased amid a global economic downturn, commodity prices remain well above historical averages.
But CEOs of grocery chains like Safeway and Kroger say those higher prices are increasingly out of whack with their own lower-priced private label products.
“We have seen some price declines,” Kroger Chief Executive David Dillon said on a conference call, but he said prices for national brands were not in step with a broader fall in commodity costs.
Dillon said sales of national brands were ho-hum, while sales of Kroger’s store brands are rising enough to hit historic highs.
“That’s going to continue as long as that kind of price differential exists,” said Dillon, who expects national brand sellers to discount via promotions before they cut prices.
Check Out Line: Happy over Sears
Sears Holdings beat Wall Street expectations when it reported earnings this morning, helped by cost cuts, and the market sang its praises by sending shares up 8 percent. The streamlining isn’t over either, as the company controlled by Eddie Lampert announced plans to shutter another 24 stores.
We’re wondering about the exuberance of the market’s response, since the results still show marked same-store sales declines for the company’s Kmart and Sears, Roebuck stores and questions remain about whether the company can pull off a real turnaround in the future.
But maybe we should ask the short sellers. As of mid-February, 14.8 million shares of Sears Holdings –about 12 percent of its shares outstanding –were held short. That’s down about 18 percent in the past month, suggesting a decrease in bearish sentiment toward the stock. Also in the basket:
Limited Brands profit falls, sees first-quarter loss
Check Out Line: Sharper Image looks to follow in Wendy’s footsteps
Check out Sharper Image Corp — the struggling maker of $240 shavers and $170 toothbrushes — looking to follow in the footsteps of Wendy’s International Inc.
Wendy’s, the No. 3 U.S. hamburger chain behind McDonald’s Corp and Burger King Holdings Inc, sold itself on Thursday to the investment arm of billionaire investor Nelson Peltz in a deal valued at about $2.4 billion.
Sharper Image, whose expensive gadgets have fallen out of favor in a weak economic environment, put itself up for sale in a bid to survive just two months after filing for Chapter 11 bankruptcy protection.
It may be on the block for a while. After Wendy’s put itself on the block in June, money to finance such deals has dried up as the U.S. housing meltdown and global credit crisis have pinched big banks and other sources of cash.
Also in the basket:
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