Original Story: USAToday.com
You may be basking in the last few weeks of summer and counting down to Labor Day getaways, but for retailers it was time to go back to school a month ago.
That's when many of them started promotions for one of the biggest shopping periods of the year — one that's also become perhaps the most prolonged shopping period of the year, with families buying back-to-school items from practically the fourth of July until after classes start. Deloitte's annual back-to-school shopping survey out last month found that more than a quarter of parents plan to finish their shopping after the start of the school year.
"We're seeing it expanded out throughout the season," says Steve Bratspies, executive vice president of general merchandise for Walmart. He says customers are shopping more frequently and making smaller basket purchases over a longer period of time rather than doing one huge buy.
And that means stores are throwing absurdly cheap prices — think 17-cent notebooks — and price-matching guarantees at customers in an effort to stay relevant and competitive over three months of back-to-school shopping.
• Staples is offering a 110% price-match: If a customer finds a product cheaper somewhere else, Staples will match the price plus give the customer back 10% of the difference. And those 17-cent notebooks are part of a list of items at low prices for the entire shopping season. Rulers, glue, paper, colored pencils, erasers, crayons, ballpoint pens and markers are all on sale for a dollar or less through Labor Day.
• Walmart has 30% more back-to-school items available online than last year and is reducing prices on 10% more back-to-school items than last year both online and in stores. This month, a price-matching pilot program rolled out store-wide. It allows customers to enter an ID code listed on their in-store receipt at Walmart.com and compare the prices of everything they bought to all advertised prices from that week. If Walmart's prices were more expensive, it will refund the difference in the form of an e-gift card.
• Old Navy, already known for its steep back-to-school promotions, has T-shirts starting at $4 and jeans starting at $8. "We obviously started early," says Jamie Gersch, vice president of marketing. "And then want to make sure we stay relevant through Labor Day." The retailer started back-to-school deals in mid-July.
• Sears is trying to make shopping more enticing by expanding in-store pickup across both Sears and Kmart stores. Customers can order items on Kmart.com but pick them up at a Sears, and vice versa. Sears customers don't even have to get out of the car if they opt for in-vehicle pickup for online orders.
The National Retail Federation expects families to spend $670 on average during the back-to-school season, up 5% over last year, on supplies, clothes and electronics.
Retailers are also sympathizing with teachers, who are increasingly paying for classroom supplies with their own money, by luring them with extra discounts. Walmart has a 10% discount for teachers throughout the season. Staples had a teacher appreciation weekend the first weekend of August — teachers who are rewards members got 25% off — and the company donated $1 million to Donors Choose, an organization that helps teachers pay for supplies.
Retailers are pushing a longer shopping season and earlier-than-ever deals to try to get customers to buy more over a longer period of time, says Mark LoCastro, spokesman for DealNews, which tracks price and discount trends across the Web.
"If they can push into your mind 'don't procrastinate, shop early,' they're hoping you'll do some impulse buys," he says. Plus retailers are also responding to competition. "If you're a major retailer and your primary competitors start to advertise in early June you're going to lose out on sales," LoCastro says.
With constant discounts though and 24/7 access to online retailers, shoppers have lost the sense of urgency that can lead to such impulse buys, says Simeon Siegel, retail equity analyst at Nomura.
"The days of catalyst-driven shopping have stretched," he says. "When you need to attract shoppers with something other than product, you use price and time."
Siegel says that means retailers are offering steeper discounts and for longer periods of time to try to get customers in the door. His research shows Gap has been offering higher discounts and longer promotional periods through July and August than in the comparable weeks last year. And discounts between 30% and 50% have become standard at many retailers.
Still, LoCastro says it pays to wait. DealNews finds the best prices are still at the end of August, when summer clearance and back-to-school promotions converge. LoCastro says that historically, August is one of the best times to buy laptops and apparel.
Meanwhile retailers are stuck serving the whims of millions of shoppers who seem to increasingly hold all the cards when it comes to getting cheap merchandise. Stores have always marked down items to clear inventory, Siegel says. Now they're doing it incessantly out of a need to keep shoppers with hundreds of other options interested, especially during crucial buying seasons like back-to-school.
"The reality is I think they need to do it," Siegel says. "It's somewhat of a prisoner's dilemma."
Showing posts with label retail sales. Show all posts
Showing posts with label retail sales. Show all posts
Wednesday, August 13, 2014
Monday, June 11, 2012
Retail Sales Expected to Decline
Story first appeared in Bloomberg Businessweek.
Retail sales in the U.S. probably declined in May for the first time in a year as slower employment and subdued wage gains damped demand for automobiles, economists said before reports this week.
The projected 0.2 percent decrease last month would follow a 0.1 percent gain in April that was the smallest this year, according to the median forecast of 62 economists surveyed by Bloomberg News ahead of Commerce Department figures due June 13. A measure of the cost of living fell last month for the first time in two years, reflecting cheaper gasoline prices, other data may show.
Limited payroll growth and unemployment exceeding 8 percent may make it tough for consumer spending to improve after a first-quarter pace that was the fastest in a year. At the same time, lower prices at the gasoline pump are providing relief for Americans and also helping contain inflation, giving the Federal Reserve more room to stimulate the economy should Europe’s debt crisis worsen.
According to economists, retail sales will be quite soft. It is quite evident that the job market is slowing. The Fed is much more worried about the high level of unemployment than about inflation, which is likely to remain moderate.
Household purchases will grow at 2.3 percent annual rates in each of the final three quarters of 2012, according to the median forecast in a separate Bloomberg survey of economists taken from June 1 to June 5. Consumer spending, which accounts for about 70 percent of the economy, expanded at a 2.7 percent pace last quarter.
Labor Market
Monthly employment gains have decelerated from a high this year of 275,000 in January, Labor Department figures show. Payrolls rose 69,000 in May following a 77,000 increase in April. The jobless rate climbed to 8.2 percent from 8.1 percent. Average hourly earnings rose 1.7 percent last month from May 2011, the smallest increase since December 2010.
Cooling employment and a drop in stock prices since the end of April are also weighing on Americans’ confidence. A report on June 15 may show the Thomson Reuters/University of Michigan preliminary index of sentiment fell this month from the highest level since October 2007, economists projected.
Atlanta-based Home Depot Inc., the largest U.S. home- improvement retailer, is among companies whose business plans assume slower economic growth and stubborn joblessness.
The economy still faces higher-than-normal unemployment and underemployment rates, with the consequence that value will remain of major importance to our customers.
Auto Sales
Cars and light trucks sold at a 13.7 million annual rate in May after April’s 14.4 million pace, Ward’s Automotive Group data showed. Gains of 11 percent at General Motors Co. (GM) and 30 percent at Chrysler Group LLC trailed analysts’ projections. Ford Motor Co., the only major automaker whose 13 percent increase in sales topped estimates, boosted incentives by about $100 per vehicle.
Retail sales excluding autos probably were little changed last month, according to the Bloomberg survey median.
The Commerce Department’s retail sales data, which aren’t adjusted for prices, will reflect cheaper gasoline. A gallon of regular fuel at the pump cost an average $3.71 in May, down from this year’s peak of $3.94 on April 4, according to AAA, the biggest U.S. auto group. It was $3.56 on June 7.
Less expensive gasoline may have helped free up cash for other purchases such as clothing and home goods. May same-store sales climbed more than analysts projected for Target Corp., the second-largest U.S. discount chain, and Limited Brands Inc., the operator of the Victoria’s Secret lingerie stores, company reports showed.
Retail Sales
Investors are counting on Americans to keep shopping. The Standard & Poor’s Supercomposite Retailing Index, which includes Macy’s Inc. and Gap Inc., has gained more than 16 percent this year through June 8, compared with a 5.4 percent advance for the broader S&P 500.
The decline in fuel costs is also subduing inflation. The consumer price index, the broadest of three gauges issued by Labor Department each month, fell 0.2 percent in May after no change in April, according to the Bloomberg survey median. The report is due June 14.
Receding inflation gives the Fed more flexibility to take steps to spur the economy if needed.
The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely. As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.
Manufacturing continues to support the economic expansion, albeit at a slower pace, Fed reports may show this week. Industrial production grew 0.1 percent in May after a 1.1 percent increase that was the biggest in more than a year, according to the Bloomberg survey median. The report is due June 15.
Retail sales in the U.S. probably declined in May for the first time in a year as slower employment and subdued wage gains damped demand for automobiles, economists said before reports this week.
The projected 0.2 percent decrease last month would follow a 0.1 percent gain in April that was the smallest this year, according to the median forecast of 62 economists surveyed by Bloomberg News ahead of Commerce Department figures due June 13. A measure of the cost of living fell last month for the first time in two years, reflecting cheaper gasoline prices, other data may show.
Limited payroll growth and unemployment exceeding 8 percent may make it tough for consumer spending to improve after a first-quarter pace that was the fastest in a year. At the same time, lower prices at the gasoline pump are providing relief for Americans and also helping contain inflation, giving the Federal Reserve more room to stimulate the economy should Europe’s debt crisis worsen.
According to economists, retail sales will be quite soft. It is quite evident that the job market is slowing. The Fed is much more worried about the high level of unemployment than about inflation, which is likely to remain moderate.
Household purchases will grow at 2.3 percent annual rates in each of the final three quarters of 2012, according to the median forecast in a separate Bloomberg survey of economists taken from June 1 to June 5. Consumer spending, which accounts for about 70 percent of the economy, expanded at a 2.7 percent pace last quarter.
Labor Market
Monthly employment gains have decelerated from a high this year of 275,000 in January, Labor Department figures show. Payrolls rose 69,000 in May following a 77,000 increase in April. The jobless rate climbed to 8.2 percent from 8.1 percent. Average hourly earnings rose 1.7 percent last month from May 2011, the smallest increase since December 2010.
Cooling employment and a drop in stock prices since the end of April are also weighing on Americans’ confidence. A report on June 15 may show the Thomson Reuters/University of Michigan preliminary index of sentiment fell this month from the highest level since October 2007, economists projected.
Atlanta-based Home Depot Inc., the largest U.S. home- improvement retailer, is among companies whose business plans assume slower economic growth and stubborn joblessness.
The economy still faces higher-than-normal unemployment and underemployment rates, with the consequence that value will remain of major importance to our customers.
Auto Sales
Cars and light trucks sold at a 13.7 million annual rate in May after April’s 14.4 million pace, Ward’s Automotive Group data showed. Gains of 11 percent at General Motors Co. (GM) and 30 percent at Chrysler Group LLC trailed analysts’ projections. Ford Motor Co., the only major automaker whose 13 percent increase in sales topped estimates, boosted incentives by about $100 per vehicle.
Retail sales excluding autos probably were little changed last month, according to the Bloomberg survey median.
The Commerce Department’s retail sales data, which aren’t adjusted for prices, will reflect cheaper gasoline. A gallon of regular fuel at the pump cost an average $3.71 in May, down from this year’s peak of $3.94 on April 4, according to AAA, the biggest U.S. auto group. It was $3.56 on June 7.
Less expensive gasoline may have helped free up cash for other purchases such as clothing and home goods. May same-store sales climbed more than analysts projected for Target Corp., the second-largest U.S. discount chain, and Limited Brands Inc., the operator of the Victoria’s Secret lingerie stores, company reports showed.
Retail Sales
Investors are counting on Americans to keep shopping. The Standard & Poor’s Supercomposite Retailing Index, which includes Macy’s Inc. and Gap Inc., has gained more than 16 percent this year through June 8, compared with a 5.4 percent advance for the broader S&P 500.
The decline in fuel costs is also subduing inflation. The consumer price index, the broadest of three gauges issued by Labor Department each month, fell 0.2 percent in May after no change in April, according to the Bloomberg survey median. The report is due June 14.
Receding inflation gives the Fed more flexibility to take steps to spur the economy if needed.
The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely. As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.
Manufacturing continues to support the economic expansion, albeit at a slower pace, Fed reports may show this week. Industrial production grew 0.1 percent in May after a 1.1 percent increase that was the biggest in more than a year, according to the Bloomberg survey median. The report is due June 15.
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Monday, April 16, 2012
Best Buy Losing the Fight
Story first appeared in the Los Angeles Times.
How can Best Buy be saved?
The question has been swirling around the huge retailer for a couple of years, as its same-store sales have been falling. But it picked up steam last week with the sudden resignation of the Chief Executive, who had been in his job less than three years.
The unceremonious departure looked at first as though it was connected with his professional performance, which hadn't thrilled many Best Buy watchers. But it soon transpired that the reason had something to do with questionable personal conduct, reportedly involving a female subordinate.
His method of leaving his job was the most modernistic step he's taken in years — personal behavior has been trending higher in recent years as a rationale for top-level firing in both industry and sports.
In most other respects, Best Buy under recent leadership was moving backward. The stores have been looking more forlorn and less like the teeming shoppers' carnivals of years past, and the inventory choices shrinking. Meanwhile the sales staff comes off as less knowledgeable and more indifferent. Former customers of the extinct Circuit City and Border's, the last big retailers to go down this road, must be feeling a sense of deja vu.
The challenges facing Best Buy are easy to discern. It's caught between the Scylla and Charybdis of Apple and Amazon.com. Apple has become a retail juggernaut, generating astronomical sales estimated at $5,600 per square foot at its snazzy toy-stores-for-grown-ups.
Best Buy's figure, according to its most recent annual report, is $866 per square foot — respectable for a retailer in its class, if not in Apple's league. Amazon consistently beats Best Buy on price, even without counting the advantage it gets by not charging sales tax for many customers outside its home state of Washington.
That advantage will soon be extinct in California, as it is in several other populous states. But even without the sales tax bump, Amazon beats Target andWal-Mart as well as Best Buy on the prices of many items, as investment analysts at William Blair & Co. recently documented.
Like Best Buy, those chains suffer from "showrooming," in which customers try out merchandise on their sales floors and then place their orders at Amazon for less money. But Target and Wal-Mart aren't facing the sickness unto death that appears to be confronting Best Buy. Not at the moment, anyway.
Sure, judging Best Buy against premier marketer Apple and online-only Amazon is a mite unfair. Apple stores sell essentially five branded products with cult-like followings (Mac desktops, Mac notebooks, the iPad, the iPhone and the iPod).
Amazon doesn't have to build and maintain walk-in stores; on the other hand, after launching in 1995, it spent so relentlessly on distribution and technology systems that it didn't show a profit until 2003. But that spending yielded what today stands as the best customer experience on the Web.
Every retailer is different, like Tolstoy's unhappy families, and good lifeline-caliber ideas can be found anywhere. The architect of Apple's retail store strategy, came from Target at a time when Apple's lack of any retail strategy threatened its very existence.
Nothing is stopping Best Buy from picking out the best ideas in the field and adapting them to its own space. At least that would be an improvement over its current strategy, which seems to be to pick out everyone's worst ideas and try to take them to the bank. These include its shift toward smaller, mall-based storefronts with limited merchandise.
The former CEO's last major announcement before resigning was that he would close 50 of the chain's 1,100 U.S. big-box stores while expanding small-format locations.
So what are the best ideas?
One is that expertise sells. The first Apple stores opened in early 2001 — believe it or not, this was before the iPod. Since then, they've built on the company's reputation for hip design and first-class technical service. The products are laid out on tables to encourage the touchy-feely experience. Employees are ubiquitous but unobtrusive.
The techs at the Genius Bar seem trained in Apple technology to the last brain cell. The hard sell is so deeply submerged in the store experience that you may not even know you've been sold until you're out the door with a MacBook in hand. But you'll think the staff has identified your need and found a way to meet it.
Another retail lesson worth internalizing is that a chain doesn't have to be pitched toward the affluent to offer good service.
Nordstrom, which occupies a high-end market segment, is known for its attentive sales staff. But walk into a Men's Wearhouse and you don't have to chase after a salesperson with a butterfly net — typically you're greeted promptly by someone in full command of the inventory on the floor. By the way, Men's Wearhouse collects more revenue per square foot of selling space than Nordstrom ($451 versus $431), according to the firms' most recent annual reports.
Put these two notions together, and you might just have a new Best Buy paradigm. As our lives become more enslaved by technology, the need for expert help sorting out how best to integrate every Bluetooth- and Wi-Fi-enabled thing grows greater.
Best Buy nodded to this reality with its techie-staffed Geek Squad. The Squadsters are not especially well-trained to divine a customer's tech-related problems and cobble together a solution from all the inventory at hand. In any case, the last time I was in a store, two of them gave me two completely different answers to the problem I brought them; I suppose it's to their credit that only one of them was wrong.
The chain could do worse than to hire and train more employees with real knowledge of technology and an incentive to solve customers' dilemmas instead of selling them useless extended warranties, which is by far the most offensive aspect of dealing with Best Buy.
And how about staffing up? It hasn't been unusual for the first salesperson to accost me inside a Best Buy to be an embedded sales agent for a service such as Verizon or DirecTV. Yet the big idea in the last Christmas season was to hire only half as many seasonal workers as the year before.
Then there's the dilemma of online. Conventional retailers wasted years treating their online arms as though they were fifth columns.
Best Buy's online integration has been so poor that in the week before Christmas it canceled what may have been thousands of online orders placed as early as November for lack of inventory, certainly a mortal sin in customer service.
The chain may be crippled by "showrooming," but why not offer customers looking over items in the store an incentive to place their orders through Bestbuy.com rather than Amazon? And the company may have to bite the bullet and extend its price match policy to cover not only its brick-and-mortar competitors but online merchants too.
All this points to lower profit margins ahead, but that's the cost of investing in new strategy and tactics. But if the choice is between rebuilding your customer base or letting it fade away like those of Circuit City, CompUSA and other retailers done in by, well, Best Buy, the road is clear. The worst thing that could happen to the chain is for the question to change from "how Best Buy can be saved" to "can it be saved," especially if the answer is no.
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Tuesday, December 28, 2010
Holiday Sales Numbers Very Strong
Retailers See Holiday Sales Jump
Original Article By The Wall Street Journal
American shoppers expanded their year-end purchases this holiday season by the biggest margin since the boom year of 2005, but retailers still face daunting challenges in the new year, from rising gasoline and cotton prices to an overabundance of stores.
American shoppers expanded their year-end purchases by the biggest margin since 2005, but heady challenges lie ahead for retailers.
U.S. retail sales, excluding automobiles, rose 5.5% between Nov. 5 and Dec. 24 compared with a year ago, according to MasterCard SpendingPulse, a unit of MasterCard Advisors that tracks sales by all types of payment.
Last year, sales rose 4.1% during the 50 day period, but those results were easy comparisons against the recession in 2008, when sales fell 6.1%.
Many retail stores are reporting that consumers are looking to spend again and that retail consumers are more confident than in recent months.
The retail spending numbers were not reflective of a late December storm, which did not hit most of the East Coast until Christmas Day or later. The day after Christmas is traditionally one of the season's biggest shopping days but retailers are expecting that shoppers will simply delay their purchases, not abandon them.
Just how long retailers' confidence will last for shoppers and stores alike is the big question. Shoppers took advantage of special deals on new, unique products such as microfiber cloth and Home Office Furniture.
A consumer sentiment index released Thursday showed consumer moods were at their highest level in December since June. Recent surveys of chief executives and chief financial officers likewise show a growing number of companies expecting to increase hiring and spending over the next year.
This year's improved job and stock markets, and the two percentage-point cut in employees' payroll taxes that's coming in January should make people a little freer with their money. U.S. consumer spending is forecast to rise 3.5% next year, the fastest pace since 2004.
During the holiday season, clothing posted the strongest gain, up 11.2% over the same period last year when apparel sales were roughly flat. Computer sales including sales of refurbished dell laptops rose significantly this year, as great price offers made used and refurbished computers a great value for consumers. Meanwhile sales in some electronics categories realized only small gains from prior years as a glut of televisions drove prices down and shoppers shied away from new innovations such as 3D TVs. After several years of lackluster sales, jewelry was a standout category notching an 8.4% sales gain.
But risks to consumer spending still loom. Strained state and local governments may be forced to lay off more workers than previously expected. And rising energy prices could pinch spending on other items in the months ahead. This month, the average price for a gallon of gasoline has topped $3 a gallon for the first time in two years.
Rising oil prices hasn't damped consumer spending yet, but if oil prices rise significantly in 2011 it could adversely affect retailers.
Although clothing and jewelry sales have sizzled in late 2010, potential hurdles to continued retail spending in 2011 still exist; one consideration is theft and the demand for unarmed security guards and professional security officers in retail stores has increased. One of the largest hurdles that could impact retail psending in 2011 is the housing market. If slipping prices set off a new round of home foreclosures, banks may rein in lending again. The saving rate has recently slipped—in November, consumers saved 5.3% of their after tax income, compared with 6.3% in June. Any fresh shocks to confidence could prompt consumers to stop spending less and focus on saving once again.
Over the past four quarters, consumer spending accounted for 68.6% of demand in the economy, up from 66.5% in 2007. The reason: With housing contributing less to the economy than at any time since World War II, and with businesses spending also down sharply, consumer spending is taking a larger piece of the overall pie.
Even if shoppers continue to loosen purse strings in the year ahead, the retail landscape is still littered with too many stores for all to prosper. The U.S. now has some 40 square feet of retail space for each person—the most per person in the world.
With the growing momentum of Internet sales—Web sales grew 15.5% during the holiday season—competition is expected to get even more fierce in 2011.
Meanwhile, retailers that specialize in creating inexpensive fashionable clothing such as Uniqlo, Zara and H&M have big expansion plans in the U.S.
Retailers have learned to better align inventory with the rate of sales to avoid panic discounting that erodes profits. Saks Inc. has been working to wean customers off of the hefty discounting that began in the throes of the recession two years ago, but has done so at a cost.
Offering fewer promotions, Saks forecast a "mid-single digit" sales growth for the second half of 2011. Saks is projecting that sales growth could be in the double-digit range if luxury retailers offer more discounts.
A major concern for apparel and home goods makers in 2011 is the impact of rising cotton costs on the price of products. Many small and medium-sized manufacturers, predict that the wholesale price of items; will likely rise at least 10% for goods that consumers will start to see in the summer of 2011.
The increase marks the first time apparel will be inflationary in at least 20 years. Retailers will likely take a between 3% and 5% hit on margins for cotton-heavy products to avoid raising prices too drastically.
Rising cotton prices is a concern, if prices go up by 10% or more, as predicted, retailers will have no choice but to pass along price increases to consumers.
Original Article By The Wall Street Journal
American shoppers expanded their year-end purchases this holiday season by the biggest margin since the boom year of 2005, but retailers still face daunting challenges in the new year, from rising gasoline and cotton prices to an overabundance of stores.
American shoppers expanded their year-end purchases by the biggest margin since 2005, but heady challenges lie ahead for retailers.
U.S. retail sales, excluding automobiles, rose 5.5% between Nov. 5 and Dec. 24 compared with a year ago, according to MasterCard SpendingPulse, a unit of MasterCard Advisors that tracks sales by all types of payment.
Last year, sales rose 4.1% during the 50 day period, but those results were easy comparisons against the recession in 2008, when sales fell 6.1%.
Many retail stores are reporting that consumers are looking to spend again and that retail consumers are more confident than in recent months.
The retail spending numbers were not reflective of a late December storm, which did not hit most of the East Coast until Christmas Day or later. The day after Christmas is traditionally one of the season's biggest shopping days but retailers are expecting that shoppers will simply delay their purchases, not abandon them.
Just how long retailers' confidence will last for shoppers and stores alike is the big question. Shoppers took advantage of special deals on new, unique products such as microfiber cloth and Home Office Furniture.
A consumer sentiment index released Thursday showed consumer moods were at their highest level in December since June. Recent surveys of chief executives and chief financial officers likewise show a growing number of companies expecting to increase hiring and spending over the next year.
This year's improved job and stock markets, and the two percentage-point cut in employees' payroll taxes that's coming in January should make people a little freer with their money. U.S. consumer spending is forecast to rise 3.5% next year, the fastest pace since 2004.
During the holiday season, clothing posted the strongest gain, up 11.2% over the same period last year when apparel sales were roughly flat. Computer sales including sales of refurbished dell laptops rose significantly this year, as great price offers made used and refurbished computers a great value for consumers. Meanwhile sales in some electronics categories realized only small gains from prior years as a glut of televisions drove prices down and shoppers shied away from new innovations such as 3D TVs. After several years of lackluster sales, jewelry was a standout category notching an 8.4% sales gain.
But risks to consumer spending still loom. Strained state and local governments may be forced to lay off more workers than previously expected. And rising energy prices could pinch spending on other items in the months ahead. This month, the average price for a gallon of gasoline has topped $3 a gallon for the first time in two years.
Rising oil prices hasn't damped consumer spending yet, but if oil prices rise significantly in 2011 it could adversely affect retailers.
Although clothing and jewelry sales have sizzled in late 2010, potential hurdles to continued retail spending in 2011 still exist; one consideration is theft and the demand for unarmed security guards and professional security officers in retail stores has increased. One of the largest hurdles that could impact retail psending in 2011 is the housing market. If slipping prices set off a new round of home foreclosures, banks may rein in lending again. The saving rate has recently slipped—in November, consumers saved 5.3% of their after tax income, compared with 6.3% in June. Any fresh shocks to confidence could prompt consumers to stop spending less and focus on saving once again.
Over the past four quarters, consumer spending accounted for 68.6% of demand in the economy, up from 66.5% in 2007. The reason: With housing contributing less to the economy than at any time since World War II, and with businesses spending also down sharply, consumer spending is taking a larger piece of the overall pie.
Even if shoppers continue to loosen purse strings in the year ahead, the retail landscape is still littered with too many stores for all to prosper. The U.S. now has some 40 square feet of retail space for each person—the most per person in the world.
With the growing momentum of Internet sales—Web sales grew 15.5% during the holiday season—competition is expected to get even more fierce in 2011.
Meanwhile, retailers that specialize in creating inexpensive fashionable clothing such as Uniqlo, Zara and H&M have big expansion plans in the U.S.
Retailers have learned to better align inventory with the rate of sales to avoid panic discounting that erodes profits. Saks Inc. has been working to wean customers off of the hefty discounting that began in the throes of the recession two years ago, but has done so at a cost.
Offering fewer promotions, Saks forecast a "mid-single digit" sales growth for the second half of 2011. Saks is projecting that sales growth could be in the double-digit range if luxury retailers offer more discounts.
A major concern for apparel and home goods makers in 2011 is the impact of rising cotton costs on the price of products. Many small and medium-sized manufacturers, predict that the wholesale price of items; will likely rise at least 10% for goods that consumers will start to see in the summer of 2011.
The increase marks the first time apparel will be inflationary in at least 20 years. Retailers will likely take a between 3% and 5% hit on margins for cotton-heavy products to avoid raising prices too drastically.
Rising cotton prices is a concern, if prices go up by 10% or more, as predicted, retailers will have no choice but to pass along price increases to consumers.
Sunday, November 7, 2010
Holiday Merchandes and Sales coming later than Last Year
USA Today
Last year Santa Claus was fighting the grim reaper for shelf space. Candy corn was in a battle with candy canes. And among all those spooky decorations were Christmas trees sparkling with lights.
By the time Halloween hit in 2009, it was beginning to look a lot like Christmas.
Sales, promotions and ads abounded as early as July as retailers pushed holiday merchandise and so-called "doorbuster" Christmas deals, trying to grab any dollar tight-fisted consumers were willing to spend.
So far this year, there aren't too many icicles and snowflakes.
Christmas merchandise is sparse, if it's there at all, and ads promoting the holidays are slim.
"What retailers really have recognized is last year didn't work at all," says Marshal Cohen, chief industry analyst with The NPD Group. "They went out last year early, but it was just so early that by the time the holidays came around, it was just too stale."
While the strategy seemed like a good one, it didn't propel sales. Last year's holiday sales rose a modest 3.6% over 2008. And looking back, retailers realized it was mid-November before consumers really started spending, Cohen says. During tough economic times, consumers tend to buy closer to the time they need an item.
Take the upcoming holiday season: Sixty-three percent of consumers said they wouldn't start shopping until November, according to the National Retail Federation. Less than 13% said they started before September.
That could signal another tough holiday season. The retail federation is predicting holiday sales will rise 2.3% to $447.1 billion and average consumer spending will see a slight increase from $682 to $689. In 2007, consumers spent more than $780 each.
"Pessimism among Americans about the upcoming Christmas season is off the charts," says Britt Beemer, founder and chief executive officer of America's Research Group.
That means retailers are keeping inventories lean. They won't overbuy, so they won't have leftover merchandise — but they also don't want to run out of merchandise too early in the holiday shopping season.
Before Halloween, a tour of big-name stores such as Walmart and Target in Indianapolis showed no Christmas merchandise and no displays pushing holiday deals. Target says it is following its typical timetable, though some shoppers disagree.
Simon Property Group, the nation's largest mall owner, is putting up its Christmas decorations next week, the same as always, Les Morris said.
Cohen says practically all major retailers had at least some Christmas displays out by Sept. 18 in 2009. Many were pushing the holidays well before then.
Sears is among the few continuing that trend this year, some analysts say.
Like last year, it put up its Christmas Lane at 372 stores right after the July Fourth holiday. It's also leading the way with early promotions, starting its holiday deals this weekend with a DieHard wheeled battery charger for $69.99, regularly $119.99, and a sapphire with diamond ring for $29.99, regularly $99.99.
Other retailers had planned to do some early sales as well but have backed off, Beemer said.
"I sure haven't seen it," he said. "Seems to me they are holding back."
The lack of holiday promotions may be related to the unending flow of election campaign ads that has made it tough for retailers to get ad space.
Guglielmi also said Halloween falling on a Sunday has a lot to do with the lack of holiday ads so far this year because most merchandise sales run Sunday to Sunday.
"While it may vary slightly by store, you will see the holiday merchandise and in-store signage in stores next week," spokeswoman Tara Schlosser said. "We are setting the merchandise on a schedule consistent with previous years."
Janice Schafer disagrees. As she shopped Wednesday at the SuperTarget in Fishers, Ind., she said she was sure some holiday goods were out in October last year.
"I swear I bought Christmas ornaments before Halloween here last year," Schafer said. "I was here today looking for a wreath for my front door. Guess I'm out of luck."
By the time Halloween hit in 2009, it was beginning to look a lot like Christmas.
Sales, promotions and ads abounded as early as July as retailers pushed holiday merchandise and so-called "doorbuster" Christmas deals, trying to grab any dollar tight-fisted consumers were willing to spend.
So far this year, there aren't too many icicles and snowflakes.
Christmas merchandise is sparse, if it's there at all, and ads promoting the holidays are slim.
"What retailers really have recognized is last year didn't work at all," says Marshal Cohen, chief industry analyst with The NPD Group. "They went out last year early, but it was just so early that by the time the holidays came around, it was just too stale."
While the strategy seemed like a good one, it didn't propel sales. Last year's holiday sales rose a modest 3.6% over 2008. And looking back, retailers realized it was mid-November before consumers really started spending, Cohen says. During tough economic times, consumers tend to buy closer to the time they need an item.
Take the upcoming holiday season: Sixty-three percent of consumers said they wouldn't start shopping until November, according to the National Retail Federation. Less than 13% said they started before September.
That could signal another tough holiday season. The retail federation is predicting holiday sales will rise 2.3% to $447.1 billion and average consumer spending will see a slight increase from $682 to $689. In 2007, consumers spent more than $780 each.
"Pessimism among Americans about the upcoming Christmas season is off the charts," says Britt Beemer, founder and chief executive officer of America's Research Group.
That means retailers are keeping inventories lean. They won't overbuy, so they won't have leftover merchandise — but they also don't want to run out of merchandise too early in the holiday shopping season.
Before Halloween, a tour of big-name stores such as Walmart and Target in Indianapolis showed no Christmas merchandise and no displays pushing holiday deals. Target says it is following its typical timetable, though some shoppers disagree.
Simon Property Group, the nation's largest mall owner, is putting up its Christmas decorations next week, the same as always, Les Morris said.
Cohen says practically all major retailers had at least some Christmas displays out by Sept. 18 in 2009. Many were pushing the holidays well before then.
Sears is among the few continuing that trend this year, some analysts say.
Like last year, it put up its Christmas Lane at 372 stores right after the July Fourth holiday. It's also leading the way with early promotions, starting its holiday deals this weekend with a DieHard wheeled battery charger for $69.99, regularly $119.99, and a sapphire with diamond ring for $29.99, regularly $99.99.
Other retailers had planned to do some early sales as well but have backed off, Beemer said.
"I sure haven't seen it," he said. "Seems to me they are holding back."
The lack of holiday promotions may be related to the unending flow of election campaign ads that has made it tough for retailers to get ad space.
Guglielmi also said Halloween falling on a Sunday has a lot to do with the lack of holiday ads so far this year because most merchandise sales run Sunday to Sunday.
"While it may vary slightly by store, you will see the holiday merchandise and in-store signage in stores next week," spokeswoman Tara Schlosser said. "We are setting the merchandise on a schedule consistent with previous years."
Janice Schafer disagrees. As she shopped Wednesday at the SuperTarget in Fishers, Ind., she said she was sure some holiday goods were out in October last year.
"I swear I bought Christmas ornaments before Halloween here last year," Schafer said. "I was here today looking for a wreath for my front door. Guess I'm out of luck."
Wednesday, November 3, 2010
Americans likely took Retail Breather in October
LA Times
After a last-minute back-to-school buying spree, Americans appeared to have taken a shopping pause in October, resulting in a mixed retail sales picture.
That lull could continue until the day after Thanksgiving, the unofficial start of the Christmas season, as shoppers wait for big bargains, many analysts say.
Figures released Wednesday by MasterCard Advisors' SpendingPulse, a data service, showed that pockets of strength last month — luxury goods as well as women's and children's clothing — held up. Online sales also remained a bright spot.
But consumer electronics, dragged down by deep discounting on flat-panel televisions, suffered spending declines compared with October 2009. Men's clothing sales were lackluster. Consumers also pulled back again on major appliances amid the absence of home tax incentives.
More detail will be available Thursday when individual chains release their October sales results.
"This was an OK month. It wasn't that bad," said Mike McNamara, vice president of research and analysis for SpendingPulse, which includes transactions in all forms including cash.
McNamara noted he had been concerned about October's sales because retailers don't want to see a buildup of inventory heading into the season. But with the exception of super-sized TVs, which have been victims of an industrywide glut, he says that retailers weren't stuck with a lot of merchandise they had to get rid of to make room for holiday stock.
However, many other analysts trimmed their October forecasts. The International Council of Shopping Centers pared its forecast for a key measure called revenue at stores open at least a year. ICSC now expects growth to be anywhere from 2 percent to 2.5 percent, despite a boost from Halloween spending. That's slightly down from an earlier prediction for 2.5 percent to 3 percent growth.
Luxury stores such as Saks and Nordstrom are expected to reap strong gains because the stock market is rebounding, while discounters should fare well. Analysts believe department stores got hurt last month because unusually warm weather hurt sales of cold-weather items. Analysts will be closely monitoring last month's performance at discounter Target Corp., which unveiled its much-publicized 5 percent discount to store credit and debit card holders. The offer started Oct. 17.
Wal-Mart Stores Inc., the world's largest retailer, no longer reports revenue at stores open at least a year on a monthly basis.
"Retailers may see some pent-up demand" as temperatures cool, but Ken Perkins, president of research firm RetailMetrics. added, "Retailers are going to have to be promotional. Most consumers are waiting. Unless (the bargains are) really enticing like 70 percent, consumers are going to hold off. It's going to be another late holiday season."
The uneven fall selling period reflects how shoppers are increasingly spending only when they have a good reason to come out to the mall — whether it's for back-to-school or if they're out of something, such as milk.
"The consumer environment remains choppy with increased promotional levels," UBS analyst Roxanne Meyer wrote in a report issued Monday.
Economists expect holiday sales to be only modestly better than last year as shoppers remain cautious about spending. Unemployment is still stuck close to 10 percent, and consumers' confidence is still well below what's considered healthy. That's why more retailers are making an even bigger push to market Christmas starting in October.
Sears Holdings Corp. and Amazon.com are already offering discounts they're pitching as "Black Friday" deals. Though retailers would like people to shop earlier, Black Friday, the day after Thanksgiving, is considered the holiday shopping kickoff. It got its name because it was historically the day that merchants sold enough merchandise to push them into profitability or "the black" for the year.
However, despite a similar early holiday marketing push last year, consumers didn't do much buying until they came out for the big sales on the day after Thanksgiving, Perkins says.
That lull could continue until the day after Thanksgiving, the unofficial start of the Christmas season, as shoppers wait for big bargains, many analysts say.
Figures released Wednesday by MasterCard Advisors' SpendingPulse, a data service, showed that pockets of strength last month — luxury goods as well as women's and children's clothing — held up. Online sales also remained a bright spot.
But consumer electronics, dragged down by deep discounting on flat-panel televisions, suffered spending declines compared with October 2009. Men's clothing sales were lackluster. Consumers also pulled back again on major appliances amid the absence of home tax incentives.
More detail will be available Thursday when individual chains release their October sales results.
"This was an OK month. It wasn't that bad," said Mike McNamara, vice president of research and analysis for SpendingPulse, which includes transactions in all forms including cash.
McNamara noted he had been concerned about October's sales because retailers don't want to see a buildup of inventory heading into the season. But with the exception of super-sized TVs, which have been victims of an industrywide glut, he says that retailers weren't stuck with a lot of merchandise they had to get rid of to make room for holiday stock.
However, many other analysts trimmed their October forecasts. The International Council of Shopping Centers pared its forecast for a key measure called revenue at stores open at least a year. ICSC now expects growth to be anywhere from 2 percent to 2.5 percent, despite a boost from Halloween spending. That's slightly down from an earlier prediction for 2.5 percent to 3 percent growth.
Luxury stores such as Saks and Nordstrom are expected to reap strong gains because the stock market is rebounding, while discounters should fare well. Analysts believe department stores got hurt last month because unusually warm weather hurt sales of cold-weather items. Analysts will be closely monitoring last month's performance at discounter Target Corp., which unveiled its much-publicized 5 percent discount to store credit and debit card holders. The offer started Oct. 17.
Wal-Mart Stores Inc., the world's largest retailer, no longer reports revenue at stores open at least a year on a monthly basis.
"Retailers may see some pent-up demand" as temperatures cool, but Ken Perkins, president of research firm RetailMetrics. added, "Retailers are going to have to be promotional. Most consumers are waiting. Unless (the bargains are) really enticing like 70 percent, consumers are going to hold off. It's going to be another late holiday season."
The uneven fall selling period reflects how shoppers are increasingly spending only when they have a good reason to come out to the mall — whether it's for back-to-school or if they're out of something, such as milk.
"The consumer environment remains choppy with increased promotional levels," UBS analyst Roxanne Meyer wrote in a report issued Monday.
Economists expect holiday sales to be only modestly better than last year as shoppers remain cautious about spending. Unemployment is still stuck close to 10 percent, and consumers' confidence is still well below what's considered healthy. That's why more retailers are making an even bigger push to market Christmas starting in October.
Sears Holdings Corp. and Amazon.com are already offering discounts they're pitching as "Black Friday" deals. Though retailers would like people to shop earlier, Black Friday, the day after Thanksgiving, is considered the holiday shopping kickoff. It got its name because it was historically the day that merchants sold enough merchandise to push them into profitability or "the black" for the year.
However, despite a similar early holiday marketing push last year, consumers didn't do much buying until they came out for the big sales on the day after Thanksgiving, Perkins says.
Tuesday, October 26, 2010
Growth Probably Sped Up on Spending Gain: U.S. Economy Preview
Bloomberg
The economy in the U.S. probably grew at a faster pace in the third quarter, reflecting a pickup in consumer spending that bodes well for the recovery’s staying power, economists projected a report this week will show.
Gross domestic product rose at a 2 percent annual pace, up from a 1.7 percent rate in the previous three months, according to the median estimate of 67 economists surveyed by Bloomberg News before an Oct. 29 Commerce Department report. Other data may show business investment remains a mainstay of the economic rebound, while housing is mired in a slump.
The pace of growth would still not be strong enough to give the 14.8 million unemployed Americans hope of finding work soon, one reason why Federal Reserve policy makers may be about to pump more money into the economy. Wal-Mart Stores Inc. and Target Corp. are among retailers likely to gain as discounts lure budget-conscious shoppers during the year-end holidays.
“There’s no question about the sustainability of the recovery now,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “But unless we grow faster, we don’t have a shot at bringing down unemployment significantly. Improvement in consumer spending is a sign the holiday season will be better than in the past couple of years.”
The GDP estimate is the first of three for the quarter, with the other releases scheduled in November and December when more information becomes available.
Spending Climbs
Consumer spending, which accounts for about 70 percent of the economy, increased at a 2.4 percent annual rate from July through September, the best showing of the recovery that began in June 2009, economists project.
The National Retail Federation has forecast November- December sales will rise by 2.3 percent from a year ago, making it the best holiday season in four years. Wal-Mart, the world’s largest retailer, Target, Amazon.com Inc. and EBay Inc. are among merchants that will benefit as shoppers look for bargains, according to results of a survey issued this month by Consumer Edge Research in Stamford, Connecticut.
The Standard & Poor’s 500 index has gained 11 percent since Aug. 27, when Fed Chairman Ben S. Bernanke said the central bank “will do all that it can” to sustain the economy’s rebound. The measure rose 0.2 percent to 1,183.08 at the 4 p.m. close in New York on Oct. 22.
About 85 percent of companies in the S&P 500 gauge have exceeded analysts’ per-share profit estimates so far in third- quarter reports. Sales are rising at companies from Boeing Co. to chipmaker Intel Corp. and railroad CSX Corp. Faster overseas growth is also boosting earnings.
Aircraft Sales
Boeing, the world’s largest aerospace company, reported a third-quarter profit due to higher jetliner deliveries and raised its full-year forecast. The jump in orders is prompting the Chicago-based company to make plans to boost production.
The orders are coming amid a “slow, steady kind of recovery,” Chief Executive Officer Jim McNerney said on an Oct. 20 conference call. Most of the demand is from overseas.
The Commerce Department may report on Oct. 27 that orders for goods meant to last at least three years climbed 2 percent in September, the most in five months, according to the Bloomberg survey median. The gain signals business investment in new equipment continues to support the recovery.
While capital expenditures are climbing, manufacturing gains are cooling as the pace of inventory rebuilding eases compared with the surge that began in late 2009.
Housing Woes
Housing continues to struggle as foreclosures mount and unemployment near 10 percent limits demand and hurts property values. Sales of existing homes, due tomorrow from the National Association of Realtors, rose to a 4.3 million annual rate last month, according to the Bloomberg survey median. The readings over the past three months would be the lowest since comparable records began in 1999.
The Commerce Department may report on Oct. 27 that new-home purchases increased last month to a 300,000 annual rate, hovering close to the record-low 282,000 reached in May, economists predicted.
Home prices in 20 cities for the 12 months through August climbed at a slower pace, according to the Bloomberg survey. The S&P/Case-Shiller index is due Oct. 26.
Consumer confidence reports may show little change this month as the lack of jobs unnerves Americans. The Thomson Reuters/University of Michigan’s sentiment index, due Oct. 29, is projected to drop to a three-month low, while the Conference Board’s gauge on Oct. 26 may climb from a one-year low.
Monday, October 11, 2010
Finally, a Back-to-School Bounce for Retailers
LA Times
September sales at major chain stores rise 2.8% from a year earlier, beating analysts' predictions and nurturing hopes of a healthy holiday shopping season.
Although it came late, back-to-school season made the grade for retailers this year after two disappointing seasons, boosting hopes that the holidays could see healthy sales as well.
Retailers said back-to-school sales were strong during the first half of September as students rushed to youth-oriented shops and department stores to stock up on new outfits.
Considered a good barometer of discretionary spending, the teen apparel sector delivered a strong 6.7% sales gain last month, significantly better than the expected 0.5% increase and its best result since April 2008, according to a monthly tally of retailers by Thomson Reuters.
Overall, major chain stores reported September sales results Thursday that showed a 2.8% increase over the same month a year earlier, Thomson Reuters said. The rise was better than the 2.1% increase that analysts had predicted, and more than three-fourths of retailers beat or met expectations.
Among the month's strongest performers were action-sports retailer Zumiez Inc., which posted a 17% year-over-year increase; teen chain Abercrombie & Fitch Co., with a 13% rise; and Limited Brands, parent of such mall regulars as Victoria's Secret and Bath and Body Works, which posted a 12% gain.
The results were a relief for retailers because September was the first month this year to face difficult year-ago sales comparisons and because back-to-school sales got off to a slow start this summer.
Still, September's performance was "somewhat uneven," with upscale retailers including Nordstrom Inc. and Saks Inc. performing especially well, said Michael Niemira, chief economist of the International Council of Shopping Centers. He said overall sales, while positive, were hampered by abnormally warm weather, which curbed demand for fall merchandise.
"The fact that luxury continued to post a strong performance is not surprising given the recent improvement in high-income-household consumer confidence," he said. "This is especially encouraging for the economy and the upcoming holiday shopping season because the top 20% of households by income account for nearly 40% of total consumption."
Industry experts are still taking a cautious tone about the holidays as retailers turn their attention to the all-important season. Consumer spending has lost a bit of steam in recent months, which has caused some economists to worry that shoppers will spend frugally for the third Christmas in a row.
This week, the National Retail Federation estimated that holiday sales would rise a modest 2.3% over last year and warned that lingering economic uncertainty would be a major factor in how consumers shopped for presents and other holiday-related items.
The nation's high unemployment rate and the lack of job growth continue to be chief among consumers' worries, so merchants will have to work hard to lure nervous shoppers, said Jack Kleinhenz, the trade group's chief economist, in a call with reporters.
"What we need is consistency and durability of the economy and economic policies," he said. "As we go into the holiday season, we'll see a lot more promotions…. Retailers are going to want to create the opportunity to buy."
At the Beverly Center recently, Estella Jarcia, 32, was looking for a new outfit for work but said her buying habits weren't what they used to be.
"I'm shopping less, definitely, because I feel guilty shopping when there are people out of jobs," the retail buyer from Los Angeles said. "I used to shop every weekend, and now I shop twice a month, if that."
Weaker September performers included Hot Topic Inc., with a 2.6% decline; apparel retailer Gap Inc., where sales fell 2%; and teen chain Wet Seal Inc., which saw sales drop 0.7%.
Results are based on sales at stores open at least a year, known as same-store sales and considered an important measure of a retailer's health because it excludes the effect of store openings and closings.
For October, which is traditionally a quiet retail month as consumers take a break from back-to-school splurging and gear up for Christmas, the International Council of Shopping Centers is estimating sales will increase 2.5% to 3%. Zumiez and Ross Stores Inc. warned that they would probably post only single-digit sales increases for the month.
For the holidays, economist Kleinhenz said merchants would have to respond to a "seismic shift in the mind-set" of many consumers, who may have become comfortable with a decreased level of spending.
Shopper Lynne Dufresne, 50, echoed that sentiment while browsing for dresses at a Forever 21 store in Los Angeles recently, saying she cut back when the recession hit and hasn't returned to her former buying habits.
"I've adjusted — I just shop less now," said Dufresne, a counselor from Hollywood. "It's changed me, but I think that's for the better."
Although it came late, back-to-school season made the grade for retailers this year after two disappointing seasons, boosting hopes that the holidays could see healthy sales as well.
Retailers said back-to-school sales were strong during the first half of September as students rushed to youth-oriented shops and department stores to stock up on new outfits.
Considered a good barometer of discretionary spending, the teen apparel sector delivered a strong 6.7% sales gain last month, significantly better than the expected 0.5% increase and its best result since April 2008, according to a monthly tally of retailers by Thomson Reuters.
Overall, major chain stores reported September sales results Thursday that showed a 2.8% increase over the same month a year earlier, Thomson Reuters said. The rise was better than the 2.1% increase that analysts had predicted, and more than three-fourths of retailers beat or met expectations.
Among the month's strongest performers were action-sports retailer Zumiez Inc., which posted a 17% year-over-year increase; teen chain Abercrombie & Fitch Co., with a 13% rise; and Limited Brands, parent of such mall regulars as Victoria's Secret and Bath and Body Works, which posted a 12% gain.
The results were a relief for retailers because September was the first month this year to face difficult year-ago sales comparisons and because back-to-school sales got off to a slow start this summer.
Still, September's performance was "somewhat uneven," with upscale retailers including Nordstrom Inc. and Saks Inc. performing especially well, said Michael Niemira, chief economist of the International Council of Shopping Centers. He said overall sales, while positive, were hampered by abnormally warm weather, which curbed demand for fall merchandise.
"The fact that luxury continued to post a strong performance is not surprising given the recent improvement in high-income-household consumer confidence," he said. "This is especially encouraging for the economy and the upcoming holiday shopping season because the top 20% of households by income account for nearly 40% of total consumption."
Industry experts are still taking a cautious tone about the holidays as retailers turn their attention to the all-important season. Consumer spending has lost a bit of steam in recent months, which has caused some economists to worry that shoppers will spend frugally for the third Christmas in a row.
This week, the National Retail Federation estimated that holiday sales would rise a modest 2.3% over last year and warned that lingering economic uncertainty would be a major factor in how consumers shopped for presents and other holiday-related items.
The nation's high unemployment rate and the lack of job growth continue to be chief among consumers' worries, so merchants will have to work hard to lure nervous shoppers, said Jack Kleinhenz, the trade group's chief economist, in a call with reporters.
"What we need is consistency and durability of the economy and economic policies," he said. "As we go into the holiday season, we'll see a lot more promotions…. Retailers are going to want to create the opportunity to buy."
At the Beverly Center recently, Estella Jarcia, 32, was looking for a new outfit for work but said her buying habits weren't what they used to be.
"I'm shopping less, definitely, because I feel guilty shopping when there are people out of jobs," the retail buyer from Los Angeles said. "I used to shop every weekend, and now I shop twice a month, if that."
Weaker September performers included Hot Topic Inc., with a 2.6% decline; apparel retailer Gap Inc., where sales fell 2%; and teen chain Wet Seal Inc., which saw sales drop 0.7%.
Results are based on sales at stores open at least a year, known as same-store sales and considered an important measure of a retailer's health because it excludes the effect of store openings and closings.
For October, which is traditionally a quiet retail month as consumers take a break from back-to-school splurging and gear up for Christmas, the International Council of Shopping Centers is estimating sales will increase 2.5% to 3%. Zumiez and Ross Stores Inc. warned that they would probably post only single-digit sales increases for the month.
For the holidays, economist Kleinhenz said merchants would have to respond to a "seismic shift in the mind-set" of many consumers, who may have become comfortable with a decreased level of spending.
Shopper Lynne Dufresne, 50, echoed that sentiment while browsing for dresses at a Forever 21 store in Los Angeles recently, saying she cut back when the recession hit and hasn't returned to her former buying habits.
"I've adjusted — I just shop less now," said Dufresne, a counselor from Hollywood. "It's changed me, but I think that's for the better."
Wednesday, October 6, 2010
Retailers' Holiday Hinges on Discounts
The Wall Street Journal
Forecasters expect a better holiday season for U.S. retailers, but say the price will be more discounts to get consumers shopping.
The National Retail Federation expects holiday sales to rise 2.3% over last year to $447.1 billion, the biggest increase in three years, in part because of more aggressive pricing strategies. The tone was set by the discount-driven back-to-school shopping season, which wrapped up in September with strong sales of children's and teen clothing, according to MasterCard Inc.'s SpendingPulse unit that tracks payment by cash, check and credit card.
"We expect a very, very competitive and aggressive Christmas and holiday selling season, price-focused," Bill Simon, chief executive of Wal-Mart Stores Inc.'s U.S. business, said at a recent conference.
The International Council of Shopping Centers released its forecast Tuesday, predicting an increase in sales during the holiday shopping season of between 3% and 3.5%.
The shift back into discounting mode is an about-face from the previous holiday season and earlier this year, when lean inventories allowed retailers to hold the line on prices. But retailers were forced to roll out promotions to bring customers into their stores when shopping sputtered out in late spring and summer.
Back-to-school purchases provided a boost in August and September, but consumers aren't buying aggressively enough to signal an all-clear for the crucial holiday period. Last week, the Conference Board's consumer confidence index unexpectedly plunged to its lowest reading since February.
On Tuesday, women's retailer Talbots Inc. cut its sales projections based on "inconsistent" third-quarter traffic. Meanwhile, Saks Inc. said it would close its store in Southampton, N.Y., the sixth store it has decided to close this year.
September sales benefited from a holiday weekend. Specialty apparel sales rose 3.8% in September from a year earlier, according to MasterCard's SpendingPulse.
Sales of clothing were driven by purchases for children, up 2.3% over the prior-year period, as well as those for teens, up 7.9%. Parents weren't spending on themselves, however, with men's and women's apparel down 3.4% and 0.2%, respectively.
Danyelle Little, a mother of two who lives in St. Louis, waited to buy clothes for her 16-year-old son until Labor Day weekend. She took advantage of sales, such as two-for-one shorts at American Eagle Outfitters Inc. "I can't spend what I would like to spend in fear of the well running dry," said Ms. Little, a freelance writer. "I get what we need. I don't get what we want."
Ms. Little has also started saving for the holidays with the Christmas Club Card program at Kmart, a division of Sears Holdings Corp. She has been adding $30 every two weeks since August and plans to use the money, as well as the 3% interest she earns on the card, to shop for Black Friday toy sales.
Consumer electronics, meanwhile, saw relative strength, with a 4.7% increase last month over the year-earlier period. September growth came from purchases in the $500 to $1,000 category, as well as purchases under $25, according to SpendingPulse.
National Retail Federation President Matthew Shay said in an interview, "Consumers continue to be reactive to price, and there are many retailers out there that are competing on price."
A more comprehensive picture of September sales will come on Thursday, when 28 retailers report monthly figures. Those companies don't include the largest U.S. retailer, Wal-Mart Stores Inc. Analysts polled by Thomson Reuters forecast an increase of 2.1%.
The September price wars were particularly evident in the teen sector. Aéropostale Inc., a heavily promotional retailer, saw more competition this season as its higher-priced peers took deep discounts. It responded with select hoodies on sale for $14.99, the same low level it offered on Black Friday last year, says John Morris, an analyst at BMO Capital Markets.
"There's no doubt that the current climate is more promotional," said Aéropostale Co-CEO Mindy Meads at a conference last month. "In select categories, (our competitors are) hitting a little harder, which is causing us to promote harder."
That mentality was also seen in the adult sector. Gap Inc. offered a steady stream of discounts throughout the month. The new black pant styles at Gap's namesake brand—regularly priced at $49.50 to $59.50—were marked down to $35 for the first three weeks of September. At the end of the month, Gap gave shoppers 25% off their entire purchase, while Gap unit Banana Republic offered an extra 25% off all sale styles.
The National Retail Federation expects holiday sales to rise 2.3% over last year to $447.1 billion, the biggest increase in three years, in part because of more aggressive pricing strategies. The tone was set by the discount-driven back-to-school shopping season, which wrapped up in September with strong sales of children's and teen clothing, according to MasterCard Inc.'s SpendingPulse unit that tracks payment by cash, check and credit card.
"We expect a very, very competitive and aggressive Christmas and holiday selling season, price-focused," Bill Simon, chief executive of Wal-Mart Stores Inc.'s U.S. business, said at a recent conference.
The International Council of Shopping Centers released its forecast Tuesday, predicting an increase in sales during the holiday shopping season of between 3% and 3.5%.
The shift back into discounting mode is an about-face from the previous holiday season and earlier this year, when lean inventories allowed retailers to hold the line on prices. But retailers were forced to roll out promotions to bring customers into their stores when shopping sputtered out in late spring and summer.
Back-to-school purchases provided a boost in August and September, but consumers aren't buying aggressively enough to signal an all-clear for the crucial holiday period. Last week, the Conference Board's consumer confidence index unexpectedly plunged to its lowest reading since February.
On Tuesday, women's retailer Talbots Inc. cut its sales projections based on "inconsistent" third-quarter traffic. Meanwhile, Saks Inc. said it would close its store in Southampton, N.Y., the sixth store it has decided to close this year.
September sales benefited from a holiday weekend. Specialty apparel sales rose 3.8% in September from a year earlier, according to MasterCard's SpendingPulse.
Sales of clothing were driven by purchases for children, up 2.3% over the prior-year period, as well as those for teens, up 7.9%. Parents weren't spending on themselves, however, with men's and women's apparel down 3.4% and 0.2%, respectively.
Danyelle Little, a mother of two who lives in St. Louis, waited to buy clothes for her 16-year-old son until Labor Day weekend. She took advantage of sales, such as two-for-one shorts at American Eagle Outfitters Inc. "I can't spend what I would like to spend in fear of the well running dry," said Ms. Little, a freelance writer. "I get what we need. I don't get what we want."
Ms. Little has also started saving for the holidays with the Christmas Club Card program at Kmart, a division of Sears Holdings Corp. She has been adding $30 every two weeks since August and plans to use the money, as well as the 3% interest she earns on the card, to shop for Black Friday toy sales.
Consumer electronics, meanwhile, saw relative strength, with a 4.7% increase last month over the year-earlier period. September growth came from purchases in the $500 to $1,000 category, as well as purchases under $25, according to SpendingPulse.
National Retail Federation President Matthew Shay said in an interview, "Consumers continue to be reactive to price, and there are many retailers out there that are competing on price."
A more comprehensive picture of September sales will come on Thursday, when 28 retailers report monthly figures. Those companies don't include the largest U.S. retailer, Wal-Mart Stores Inc. Analysts polled by Thomson Reuters forecast an increase of 2.1%.
The September price wars were particularly evident in the teen sector. Aéropostale Inc., a heavily promotional retailer, saw more competition this season as its higher-priced peers took deep discounts. It responded with select hoodies on sale for $14.99, the same low level it offered on Black Friday last year, says John Morris, an analyst at BMO Capital Markets.
"There's no doubt that the current climate is more promotional," said Aéropostale Co-CEO Mindy Meads at a conference last month. "In select categories, (our competitors are) hitting a little harder, which is causing us to promote harder."
That mentality was also seen in the adult sector. Gap Inc. offered a steady stream of discounts throughout the month. The new black pant styles at Gap's namesake brand—regularly priced at $49.50 to $59.50—were marked down to $35 for the first three weeks of September. At the end of the month, Gap gave shoppers 25% off their entire purchase, while Gap unit Banana Republic offered an extra 25% off all sale styles.
Tuesday, September 14, 2010
U.S. Economy: Retail Sales Climbed in August for a Second Month
Bloomberg / BusinessWeek
Sales at U.S. retailers climbed in August for a second consecutive month, allaying concern the economy will stumble in the second half of the year.
Purchases increased 0.4 percent following a 0.3 percent gain in July, Commerce Department figures showed today in Washington. Sales excluding automobiles advanced 0.6 percent, twice as much as the median forecast of economists surveyed by Bloomberg News.
Bigger back-to-school discounts, an increase in the number of states offering tax-free holidays and the restoration of extended jobless benefits may have helped boost demand at chains like Kohl’s Corp. and Ross Stores Inc. Consumers’ reliance on incentives is testament to the harm caused by the lack of jobs, one reason why spending may be slow to recover.
“It’s reassuring,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who correctly forecast the ex-auto sales figure. “It takes out some of the fears we had about a month ago about the economy may be slipping into recession. If the labor market picks up, it’s sustainable.”
Inventories at U.S. businesses rose in July at the fastest pace in two years as companies stocked up ahead of the back-to- school sales season that proved to be better than projected, other figures from the Commerce Department today showed.
Shares climbed, led by a rally in technology companies that helped erase an earlier slump. The Standard & Poor’s 500 Index rose 0.4 percent to 1,126.45 at 12 p.m. in New York. The S&P Retailing Supercomposite gauge increased 1.8 percent. Treasury securities also rose, pushing the yield on the 10-year note down to 2.69 percent from 2.75 percent late yesterday.
Exceeds Forecast
Retail sales were projected to rise 0.3 percent after a 0.4 percent gain previously reported for July, according to the median estimate of 76 economists surveyed. Forecasts ranged from a decline of 0.3 percent to a 0.6 percent increase.
The gain in purchases excluding auto dealers, projected at 0.3 percent by the survey median, was the biggest since March.
Eight of 13 major categories showed increases last month, led by grocery stores, department stores and service stations. The latter may reflect higher prices for gasoline.
Congress’ reinstatement of emergency unemployment benefits in late July probably supported spending on staples, which would help explain the rise at food stores, Feroli said in a note to clients.
Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales advanced 0.6 percent after a 0.1 percent drop the prior month.
Tax-Free Holidays
August retail sales figures were in line with company reports that showed an increase in sales at stores open at least a year. Seventeen tax-free holidays in August probably drew more shoppers to malls, where discounts were deeper than those in July, according to Ken Perkins, president of Retail Metrics LLC.
Pleasanton, California-based Ross, the second-largest U.S. off-price retailer, said same-store sales rose 5 percent from August 2009, beating analysts’ forecasts. Kohl’s, a department- store chain based in Menomonee Falls, Wisconsin, reported a 4.5 percent gain, also exceeding projections for plumeria jewelry.
Best Buy Co., the world’s largest consumer-electronics retailer, today raised its annual profit forecast after second- quarter earnings beat analysts’ estimates on rising sales of mobile phones in the U.S. and overseas. The Richfield, Minnesota-based company said consumers were “highly selective” on when to shop.
Inventories Climb
Inventories at all businesses increased 1 percent in July, the most since July 2008, the other report from the Commerce Department showed. Companies had enough goods like Christmas tree storage bags on hand to supply 1.26 month’s worth of sales at July’s pace, the same as in the prior month.
The need to restock depleted inventories, a major driver of the economic recovery, will probably diminish, keeping stockpiles of consumer goods like kitchen appliances more in line with demand.
“The inventory gains were associated with restocking before the back-to-school and holiday shopping seasons,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets in Boston, who correctly forecast the gain in stockpiles and warehouse material handling. “We now have the evidence that consumer spending is back. Clearly, there is no double dip,” he said, referring to the possibility the economy would fall back into a recession.
Auto demand was one area that cooled last month. Today’s report showed dealer sales fell 0.7 percent, consistent with industry figures. General Motors Co. executives have said they expect a slow recovery in the economy and in auto demand.
Unemployment Outlook
Weak hiring may hold consumers back. Some 723,000 workers have been added to payrolls so far in 2010, or 8.6 percent of the 8.4 million jobs lost during the worst employment slump in the post-World War II era. The jobless rate is forecast to stay above 9 percent through 2011, according to a Bloomberg survey taken Sept. 1 to Sept. 9.
“Even though the economy is growing again,” President Barack Obama said at the White House on Sept. 10, “the hole the recession left was huge and progress has been painfully slow.”
Obama has proposed extending middle-income tax cuts while letting the top rates rise, and wants to spend at least $50 billion as part of a six-year program to improve transportation infrastructure and create jobs.
Purchases increased 0.4 percent following a 0.3 percent gain in July, Commerce Department figures showed today in Washington. Sales excluding automobiles advanced 0.6 percent, twice as much as the median forecast of economists surveyed by Bloomberg News.
Bigger back-to-school discounts, an increase in the number of states offering tax-free holidays and the restoration of extended jobless benefits may have helped boost demand at chains like Kohl’s Corp. and Ross Stores Inc. Consumers’ reliance on incentives is testament to the harm caused by the lack of jobs, one reason why spending may be slow to recover.
“It’s reassuring,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who correctly forecast the ex-auto sales figure. “It takes out some of the fears we had about a month ago about the economy may be slipping into recession. If the labor market picks up, it’s sustainable.”
Inventories at U.S. businesses rose in July at the fastest pace in two years as companies stocked up ahead of the back-to- school sales season that proved to be better than projected, other figures from the Commerce Department today showed.
Shares climbed, led by a rally in technology companies that helped erase an earlier slump. The Standard & Poor’s 500 Index rose 0.4 percent to 1,126.45 at 12 p.m. in New York. The S&P Retailing Supercomposite gauge increased 1.8 percent. Treasury securities also rose, pushing the yield on the 10-year note down to 2.69 percent from 2.75 percent late yesterday.
Exceeds Forecast
Retail sales were projected to rise 0.3 percent after a 0.4 percent gain previously reported for July, according to the median estimate of 76 economists surveyed. Forecasts ranged from a decline of 0.3 percent to a 0.6 percent increase.
The gain in purchases excluding auto dealers, projected at 0.3 percent by the survey median, was the biggest since March.
Eight of 13 major categories showed increases last month, led by grocery stores, department stores and service stations. The latter may reflect higher prices for gasoline.
Congress’ reinstatement of emergency unemployment benefits in late July probably supported spending on staples, which would help explain the rise at food stores, Feroli said in a note to clients.
Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales advanced 0.6 percent after a 0.1 percent drop the prior month.
Tax-Free Holidays
August retail sales figures were in line with company reports that showed an increase in sales at stores open at least a year. Seventeen tax-free holidays in August probably drew more shoppers to malls, where discounts were deeper than those in July, according to Ken Perkins, president of Retail Metrics LLC.
Pleasanton, California-based Ross, the second-largest U.S. off-price retailer, said same-store sales rose 5 percent from August 2009, beating analysts’ forecasts. Kohl’s, a department- store chain based in Menomonee Falls, Wisconsin, reported a 4.5 percent gain, also exceeding projections for plumeria jewelry.
Best Buy Co., the world’s largest consumer-electronics retailer, today raised its annual profit forecast after second- quarter earnings beat analysts’ estimates on rising sales of mobile phones in the U.S. and overseas. The Richfield, Minnesota-based company said consumers were “highly selective” on when to shop.
Inventories Climb
Inventories at all businesses increased 1 percent in July, the most since July 2008, the other report from the Commerce Department showed. Companies had enough goods like Christmas tree storage bags on hand to supply 1.26 month’s worth of sales at July’s pace, the same as in the prior month.
The need to restock depleted inventories, a major driver of the economic recovery, will probably diminish, keeping stockpiles of consumer goods like kitchen appliances more in line with demand.
“The inventory gains were associated with restocking before the back-to-school and holiday shopping seasons,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets in Boston, who correctly forecast the gain in stockpiles and warehouse material handling. “We now have the evidence that consumer spending is back. Clearly, there is no double dip,” he said, referring to the possibility the economy would fall back into a recession.
Auto demand was one area that cooled last month. Today’s report showed dealer sales fell 0.7 percent, consistent with industry figures. General Motors Co. executives have said they expect a slow recovery in the economy and in auto demand.
Unemployment Outlook
Weak hiring may hold consumers back. Some 723,000 workers have been added to payrolls so far in 2010, or 8.6 percent of the 8.4 million jobs lost during the worst employment slump in the post-World War II era. The jobless rate is forecast to stay above 9 percent through 2011, according to a Bloomberg survey taken Sept. 1 to Sept. 9.
“Even though the economy is growing again,” President Barack Obama said at the White House on Sept. 10, “the hole the recession left was huge and progress has been painfully slow.”
Obama has proposed extending middle-income tax cuts while letting the top rates rise, and wants to spend at least $50 billion as part of a six-year program to improve transportation infrastructure and create jobs.
Monday, August 16, 2010
Battered, Bargain-Hungry Buyers Keep Retail Sales Weak
The Wall Street Journal
Shoppers showed caution about everyday purchases in July, underscoring the U.S. economy's weak trajectory for the second half of the year.
Overall retail sales rose 0.4% in July, their first gain in three months, the Commerce Department said Friday. But when increases in gasoline and automobile sales are excluded, sales were down 0.1%. Grocery, clothing and electronics stores all posted declines.
The retail numbers added to growing evidence that the economic recovery is losing steam as consumers, weighed down by high unemployment and meager wage growth, show less interest in opening their wallets.
The University of Michigan reported Friday that its index of consumer sentiment barely improved in July, rising 1.8 points to 69.6, keeping it in a weak range that has persisted for more than a year.
"It's a fight every day" to draw people into stores, said John Goodman, executive vice president of apparel and home fashion for Sears Holdings Corp.
Consumer Prices Increase Modestly
J.C. Penney Co. lowered its full-year profit guidance Friday, to $1.40 to $1.50 a share from $1.64, based on what management called "an uncertain consumer climate." Kohl's Corp. trimmed its outlook as well. "We do see a cautious consumer. We see one that's reluctant to spend," Chief Executive Kevin Mansell said on a call with investors Thursday. Luxury goods such as plumeria jewelry have seen sluggish sales figures for months.
Retailers say shoppers appear focused on bargains, forgoing brand loyalty in search of lower prices. "Consumers are really in no mood to go shopping at full price right now," said Sung Won Sohn, an economist at California State University, Channel Islands, and vice chairman of retailer Forever 21. "They're going from shop to shop looking for promotions, otherwise they simply do not buy."
The constant promotional environment has encouraged comparison shopping and an overall hesitancy to buy. To counteract that trend, Sears, which also operates Kmart, has adjusted its pricing structure to offer so-called "everyday great value," signaling to shoppers a consistent price on a given item such as push reel mowers throughout the season. "It's not promotional, it's for the whole season," Mr. Goodman said. "The price stays at that price."
Reluctant consumers are keeping most prices under pressure. U.S. consumer prices rose 0.3% in July from June, the first gain in four months, largely due to higher gas prices, the Labor Department said Friday. Excluding food and energy, prices rose just 0.1%. Consumer prices on durables such as kitchen appliances were up 1.2% from last July, and stood 0.9% above the year-earlier level excluding food and energy.
The July retail sales numbers put consumer spending, the main component of U.S. economic growth, on track to grow at an annualized, inflation-adjusted rate of 1.25% in the third quarter, down from the 1.6% pace of the second quarter, according to J.P. Morgan Chase. Consumer spending grew more than 3% a year through most of the 1990s.
The Federal Reserve Bank of Philadelphia's survey of 36 professional forecasters, released Friday, showed the broader economy growing at a rate of 2.3% in the third quarter, down from the 3.3% estimate in May. Pennsylvania home remodeling is down across the state.
A key cause for the weak outlook: consumers are focused on paying down debt and trying to rebuild savings. Unemployment, at 9.5% in July, is expected to remain high—and perhaps rise further—in coming months with employers reluctant to hire amid economic uncertainty.
The housing market is showing few signs of recovery. As a result, sales of building materials and furniture each dropped 0.3% in July from June in Friday's retail-sales report.
Alice Splawn, 65 years old, and her husband have lost two-thirds of their family income since she was laid off as a business analyst in February. To cut costs, Ms. Splawn now sews her own clothing and hunts deer for dinner, and her budget has become even tighter in recent months, she said. There are no plans for new Christmas tree storage bags this year.
The Splawns, who moved into their Biwabik, Minn., home in January 2009, were able to partially renovate its unfinished basement until it became too costly to buy materials. Other costs, such as health insurance, had to come first, Ms. Splawn said. "We are afraid to finish," she said. "We have to be very careful with what we do and don't do as far as working on the house."
Kevin McBee, 24, of Winston-Salem, N.C., is paying off student loans while saving up for returning to school in September to boost his computer-design skills, in the hope of landing a job in computer graphics for videogames and film. He has started biking to work to cut transportation costs and eats most meals at home. "This is the zenith of my saving spree, so to speak," he said. Students across the country are having a more difficult time paying for Michigan college education.
Folks like the Splawns and Mr. Mcbee are making business tough for Tom Wyatt, president of Old Navy, the bargain-priced apparel chain and Gap Inc.'s largest division by sales. The practice of drawing shoppers in with a few low-priced items, in the hopes they will buy higher-margin items once inside, isn't working anymore, he said.
"They come in to buy the value, but if the other product surrounding it is not the value they perceived it to be, they don't buy it," Mr. Wyatt said. "That halo is more difficult to get today."
Overall retail sales rose 0.4% in July, their first gain in three months, the Commerce Department said Friday. But when increases in gasoline and automobile sales are excluded, sales were down 0.1%. Grocery, clothing and electronics stores all posted declines.
The retail numbers added to growing evidence that the economic recovery is losing steam as consumers, weighed down by high unemployment and meager wage growth, show less interest in opening their wallets.
The University of Michigan reported Friday that its index of consumer sentiment barely improved in July, rising 1.8 points to 69.6, keeping it in a weak range that has persisted for more than a year.
"It's a fight every day" to draw people into stores, said John Goodman, executive vice president of apparel and home fashion for Sears Holdings Corp.
Consumer Prices Increase Modestly
J.C. Penney Co. lowered its full-year profit guidance Friday, to $1.40 to $1.50 a share from $1.64, based on what management called "an uncertain consumer climate." Kohl's Corp. trimmed its outlook as well. "We do see a cautious consumer. We see one that's reluctant to spend," Chief Executive Kevin Mansell said on a call with investors Thursday. Luxury goods such as plumeria jewelry have seen sluggish sales figures for months.
Retailers say shoppers appear focused on bargains, forgoing brand loyalty in search of lower prices. "Consumers are really in no mood to go shopping at full price right now," said Sung Won Sohn, an economist at California State University, Channel Islands, and vice chairman of retailer Forever 21. "They're going from shop to shop looking for promotions, otherwise they simply do not buy."
The constant promotional environment has encouraged comparison shopping and an overall hesitancy to buy. To counteract that trend, Sears, which also operates Kmart, has adjusted its pricing structure to offer so-called "everyday great value," signaling to shoppers a consistent price on a given item such as push reel mowers throughout the season. "It's not promotional, it's for the whole season," Mr. Goodman said. "The price stays at that price."
Reluctant consumers are keeping most prices under pressure. U.S. consumer prices rose 0.3% in July from June, the first gain in four months, largely due to higher gas prices, the Labor Department said Friday. Excluding food and energy, prices rose just 0.1%. Consumer prices on durables such as kitchen appliances were up 1.2% from last July, and stood 0.9% above the year-earlier level excluding food and energy.
The July retail sales numbers put consumer spending, the main component of U.S. economic growth, on track to grow at an annualized, inflation-adjusted rate of 1.25% in the third quarter, down from the 1.6% pace of the second quarter, according to J.P. Morgan Chase. Consumer spending grew more than 3% a year through most of the 1990s.
The Federal Reserve Bank of Philadelphia's survey of 36 professional forecasters, released Friday, showed the broader economy growing at a rate of 2.3% in the third quarter, down from the 3.3% estimate in May. Pennsylvania home remodeling is down across the state.
A key cause for the weak outlook: consumers are focused on paying down debt and trying to rebuild savings. Unemployment, at 9.5% in July, is expected to remain high—and perhaps rise further—in coming months with employers reluctant to hire amid economic uncertainty.
The housing market is showing few signs of recovery. As a result, sales of building materials and furniture each dropped 0.3% in July from June in Friday's retail-sales report.
Alice Splawn, 65 years old, and her husband have lost two-thirds of their family income since she was laid off as a business analyst in February. To cut costs, Ms. Splawn now sews her own clothing and hunts deer for dinner, and her budget has become even tighter in recent months, she said. There are no plans for new Christmas tree storage bags this year.
The Splawns, who moved into their Biwabik, Minn., home in January 2009, were able to partially renovate its unfinished basement until it became too costly to buy materials. Other costs, such as health insurance, had to come first, Ms. Splawn said. "We are afraid to finish," she said. "We have to be very careful with what we do and don't do as far as working on the house."
Kevin McBee, 24, of Winston-Salem, N.C., is paying off student loans while saving up for returning to school in September to boost his computer-design skills, in the hope of landing a job in computer graphics for videogames and film. He has started biking to work to cut transportation costs and eats most meals at home. "This is the zenith of my saving spree, so to speak," he said. Students across the country are having a more difficult time paying for Michigan college education.
Folks like the Splawns and Mr. Mcbee are making business tough for Tom Wyatt, president of Old Navy, the bargain-priced apparel chain and Gap Inc.'s largest division by sales. The practice of drawing shoppers in with a few low-priced items, in the hopes they will buy higher-margin items once inside, isn't working anymore, he said.
"They come in to buy the value, but if the other product surrounding it is not the value they perceived it to be, they don't buy it," Mr. Wyatt said. "That halo is more difficult to get today."
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