Retailers, consumers and prices
Check out a lack of government stimulus checks and rising gas prices weighing on consumers –and the retailers that are trying to sell them stuff.
Best Buy reported lower earnings for its fiscal first-quarter (which ended May 30), and said sales at its stores open at least 14 months declined the most during May. A year ago it got a boost in that month when shoppers came into its stores to spend those government stimulus checks.
The consumer electronics retailer said fewer customers visited its U.S. stores during the quarter. Sales of gaming items, digital cameras, appliances and movies fell, while notebook computers, mobile phones and repair services sold well.
Meanwhile the The ICSC-Goldman Sachs chain store sales index for the week ending June 13 declined by 0.6 percent from the prior week and fell by 1.5 percent from the prior year — the weakest
year-over-year performance in seven weeks.
Check out more than half a million more people looking for work.
The layoffs have been all over the news, but when you see them all added together it shows just how bad this economy is.
The economy shed a worse-thank-expected 598,000 jobs in December. That’s the worse one-month drop since Richard Nixon was president.
“The report is awful. it’s even worse than it looks, because people did not hire workers prior to Christmas, but they still did enormous layoffs after Christmas,” Cary Leahey, economist at Decision Economics.
Retailers shed 45,000 jobs in January and have cut 219,000 jobs since November as they went through the worst holiday shopping season in at least four decades.
And the hits just keep on coming. Macy’s cut another 7,000 jobs on Monday.
Where’s that stimulus again?
Also in the basket:
Tim Hortons, Cold Stone to wed doughnuts and ice cream
Hermes, LVMH bring relief to luxury sector
Amazon New York event spurs talk of new Kindle model
Check out what Morgan Stanley is saying about retailers and restaurant owners.
It isn’t good. Morgan Stanley is cutting its 2009 earnings estimates and price targets, saying its retail sales lead indicator dropped 1.1 percentage points in June, and the key reasons — home prices, unemployment and food and fuel inflation — are not likely to improve anytime soon.
The indicator, which uses a bunch of factors to predict future retail sales, is down 3.7 percentage points from a year ago and the outlook for the second half of 2008 looks grim, Morgan Stanley said in a research report.
“We see the likelihood of a decelerating 2008 carrying over into 2009 growing,” Morgan Stanley said, adding that the tax rebate checks making their way into the system will not be enough to offset macroeconomic headwinds in 2009.
Tax rebate checks “may actually have a pull forward effect that could make conditions worse for retailers into 2009,” Morgan Stanley said.
Also in the basket:
Chico’s June same-store sales fall 12.9 percent
M&S’s Rose faces stormy showdown with shareholders
It’s a plan similar to the once the government followed in 2001, except at that point, the economy was already in a recession.
Another 27,000 retail jobs disappeared in May, according to the U.S. government’s monthly employment report. That makes 152,000 retail jobs eliminated since the beginning of the year.
Overall, nonfarm payrolls fell by 49,000. But even more worrisome for the economy and for retailers could be the jump in the unemployment rate to 5.5 percent. That half-point jump was the largest such move in 22 years and brought the unemployment rate to its highest level in 3-1/2 years.
Retailer’s May sales reports yesterday were mostly better than expected, causing some analysts to think they could signal the beginning of a consumer turnaround.
But others said it just showed a blip in spending that was caused by the tax rebate checks consumers have begun to receive.
Economic concerns could still linger after all that stimulus money is gone, they say, and things could get worse if consumers, already hit by $4-a-gallon gasoline, soaring food prices and falling home values really start to worry about their jobs.
Wonder how a half-point jump in the unemployment number plays into that?
Meanwhile, to take your mind of the jobs report, there’s always the company pep rally that masquerades as the Wal-Mart annual meeting. The world’s-largest retailer flies in employees from all around the world to help pack the basketball arena at the University of Arkansas, where stars entertain the crowd (this year’s acts include Miley Cyrus), everybody does the Wal-Mart cheer, and, oh yeah, shareholders get to ask questions.
Also in the basket:
New Wal-Mart director may herald changing of the guard (Wall Street Journal, subscription required)
Target grows makeup artist brands, adds testers (WWD)
Check out sluggish sales and high gasoline prices.
According to the International Council of Shopping Centers, chain-store sales were flat in the week ending May 24, compared with a week earlier, and were up only 1.5 percent year-over-year.
“Consumers remain cautious in their discretionary spending as a result of the record high gasoline prices,” said Michael Niemira, ICSC chief economist.
Gas costs cutting into consumer discretionary spending isn’t a new thought. But ICSC takes a stab at quantifying the effect, estimating that current gas prices — well over $4 a gallon in some places — are cutting demand at chain stores by nearly 1 percentage point.
Niemira also said a consumer tax rebate tracking survey is showing a “low propensity” to spend the recent tax rebate checks. That stimulus package might not be so stimulating.
Some retailers have been able to manage through the weakness. American Eagle Outfitters, for example, used cost-cutting and inventory reductions to post better-than-expected first quarter profit on Wednesday.
Others have have had more difficulty. Chico’s posted a sharp drop in quarterly profit, the latest example of weakness in the women’s apparel sector.
Also in the basket:
Lululemon’s incoming CEO advocates measured mantra (WWD)
Polo Ralph Lauren profit tops view; shares jump
Dollar Tree profit rises more than 14 percent
Coca-Cola Enterprises sees 2nd-qtr profit down
For Coors Light, a Night Out That Begins on MySpace (N.Y. Times)