Is Retail’s Glass Half Full in 2010?

Discussion
May 07, 2010
George Anderson

By George Anderson

On the heels of an exceptionally strong March, many could
not be blamed if they were secretly hoping for a blowout April even if most
economists predicted sales would be muted; perhaps even down a bit. Now that
the numbers are in — chains were up slightly for the month — most are looking
at the combination of March and April as an encouraging sign that consumer
spending will not suddenly dry up as it did when the financial crisis hit home
in the Fall of 2008.

According to Thomson Reuters, sales at 28 major
retail chains were up 0.5 percent versus the same period last year. This followed
a 9.1 percent year-over-year increase in March. Taken together, sales during
March and April were up 4.8 percent over 2009.

"Things are definitely looking up," Randy Brant, head of real estate
for department stores at mall operator Macerich, told the Los Angeles Times. "More
retailers are talking about expansion again, and consumer confidence is up.
Sales and traffic are starting to pick up in all our centers."

The International
Council of Shopping Centers’ (ICSC) Index of 30 retailers had sales up 0.8
percent this year compared to a 2.7 percent drop last April. For March, the
ICSC had retailers achieving a nine percent gain, the strongest year-over-year
gain since 1999. The combined numbers for March and April were up 4.9 percent
in the ICSC Index, well above the 4.1 percent increase retailers have been
tracking since January.

Beyond revenues, many are most encouraged by the fact
that retailers are driving much of these same-store gains without having to
revert to extreme discounting.

"The real takeaway is that profitability continued to improve on the healthy
underlying demand," Michael Niemira, chief economist at ICSC, told The
Associated Press
.

Discussion Questions: With four months of numbers in for the retail
industry, what are you seeing for the rest of the year? What sectors of
the business and specific retailers are you expecting to outperform the average
and why?

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17 Comments on "Is Retail’s Glass Half Full in 2010?"


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Bob Phibbs
Guest
11 years 7 days ago

While we’re not out of the woods yet, the recovery is directly linked to how shoppers feel–either it’s going to get worse or better.

In spite of the economists who will have every reason in the world to post that retail is dead from boomer retirements, to levels of credit to lack of jobs, shoppers are indeed feeling more confident.

Oil spills, terrorist acts, stock sell errors and floods notwithstanding, optimism is good for business. While sales won’t be up to pre-2007 levels, we’ll see measured gains across the board.

Roger Selbert, Ph.D.
Guest
Roger Selbert, Ph.D.
11 years 7 days ago
Not great. Here is the email we sent accompanying our latest Consumer Demand Index report: Dear CDI-subscriber, The monthly CDI moved slightly up in April, from -1 in March to +3, as did the 3-month moving average from, -2.5 to -0.6. The total demand over the coming months, however, remains in limbo, both compared to the level of December 2009 and before the downturn started in 2005. The marginal upswing experienced in March and April gives the impression of stagnation, more than recovery. The all-time low for cars, durables and other items, combined with record high figures of “none of these” (Figure 8), is severe and will dampen growth in the US and the rest of the world in the upcoming months. Higher energy prices–about 40 percent above last year–are, alongside continued high unemployment, taking their toll on demand. The few consumers who can afford to spend–10 to 14 percent of households (Figure 6 and 7)–are compensating by buying a little more food and clothing, which is why the CDI is slightly up. In spite… Read more »
Bill Emerson
Guest
Bill Emerson
11 years 7 days ago

The retail revenue numbers have indeed stabilized and are up slightly. But up from what? When you look at the volume relative to what it was prior to October 2008, most retailers are operating at 10-15% less than they were two years ago. Add in the number of major and minor closings that have reduced the number of consumer options and what you have is the first signs of a new base level of retail consumption, which is the good news. The bad news is that what profitability there is has come from expense reductions (read layoffs) and reductions in inventory levels (not so good for the vendor community). It is definitely a more rational business model. In order to get incremental profitability, however, there must be revenue growth. This means more employment.

My view for 2010 is a continuation of the Darwinian model shakeout with growth for a handful of retailers, more closings, and flat earnings overall.

Dick Seesel
Guest
11 years 7 days ago

I’d say the good results from the first quarter are encouraging but need to be kept in perspective: The comparisons from 2009 were as tough as it gets. Nevertheless, retailers who study their own data closely seem to be reporting with some consistency that shopping baskets are fuller, foot traffic is better and discretionary spending is on the rise. There are certainly other signs in the broader economy that the consumer is leading the economy out of recession.

But I agree with other panelists that the overall environment is still fragile. Today’s jobs report was encouraging in terms of job creation but the overall jobless rate is still very high. Seemingly remote events like European sovereign debt can still rattle U.S. equity markets, and consumer confidence along with them. I’m not suggesting it will take a “perfect storm” of good news to drive retail sales by the end of 2010, but I do feel that second-half gains will be more modest.

Mel Kleiman
Guest
11 years 7 days ago

Today’s announcement of better job growth than expected sounds great. But it’s still not even creating enough jobs to cover new entrants into the job market.

When over 60% of the American workforce is hourly and almost no new hiring is happening at this level in the workforce, growth is either going to stagnate or drop.

This hourly workforce is the one that spends all of its income because it has to. The other 40% have some discretion. They may be feeling a little better but after yesterday, are going back to more saving and less spending.

David Livingston
Guest
11 years 7 days ago

Right now I think the retail economy is in great shape. Good, well-run retailers are showing strong gains. Only the weak, non compelling retailers are struggling. Wegmans, Wal-Mart, Aldi, WinCo, Publix, and many others are breezing right along. The sterile and confused are continuing to report negative comps of 5% or more and making lame excuses. For good retailers, the economy is good all the time.

Kevin Graff
Guest
11 years 7 days ago

I’m not an economist or forcaster, so I can only comment from what I see happening on the sales/margin lines of my retail clients. While the trend is not across the board, the overall results are quite encouraging. Most are seeing steady, sustainable improvements in sales (albeit compared to weak 2009 numbers), but more importantly, most are seeing a bump in gross margin. Tighter inventory controls resulting in the need for fewer markdowns has helped.

While nothing is guaranteed, it looks like 2010 should be an “OK” year.

Sandy Miller
Guest
Sandy Miller
11 years 7 days ago

Retailers can fill the glass by vigorously selling with powerful graphics at the precise place where and when shoppers make actual buying decisions. As they do this they will sell one or more items to many shoppers.

Lester Willson
Guest
Lester Willson
11 years 7 days ago

In MD, the state with the highest household median income in the country, sales tax revenues continue their YoY downward trend with March 10 being 8.5% down from March 09, which was down from March 08. Haven’t seen April yet, but I do believe it will be less dramatic due to pent up demand, a resurging stock market (at least until yesterday) and mood-enhancing weather.

Numbers reported are typically for stores open a year or more, and with store closings, one might expect to see some increases in remaining stores open more than a year. Think Circuit City vs Best Buy.

Consumer spending as % of GDP will continue to decline, IMO, as Gallup reports the “new normal” in daily spending is still down in the neighborhood of 50% from June 08, if memory serves.

I believe the landscape of retailing will continue to change as Americans continue to abandon recreational shopping in favor of more targeted shopping and a volatile stock market. This ain’t over yet by a long shot.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 7 days ago

It seems clear that we are in the early stages of a rather prolonged and uneven retail recovery. Consumer sentiment is still pretty fragile. It will be interesting to see what portion of this morning’s employment report gains traction, that the unemployment rate increased to 9.9% or that the 290,000 new jobs added in April was well above consensus expectations.

As has been noted, the stronger, more dominant retailers have benefited in most segments. Not surprising. What’s also clear is that discretionary spending continues to lag, putting pressure on many specialty and independent retailers.

My hope would be that we’ll see the pace of retail sales growth gradually pick up through the balance of the 2nd quarter, which would set the stage for a much better BTS and Holiday season.

Lee Peterson
Guest
11 years 7 days ago

As Mickey Drexler said, we’d BETTER beat last year’s numbers! I think the slight improvements over last year, which was disastrous, just shows where the new line is, it certainly doesn’t indicate that things are going to be like they were in ’07. It only means we’ve bottomed out and are starting to recover. I believe you’ll still see store closings and flat numbers along with very cautious optimism for this year and most of next. As in any case, some retailers will do really well…but we can’t all be Mickey Drexlers.

Craig Sundstrom
Guest
11 years 7 days ago

What do I see in the year ahead? Sears/Kmart will begin reporting to the right of the decimal point in their sales per square foot figures because they’re so low that pennies now matter. Macy’s will announce extensive writedowns for “continuing merger-related costs,” one of us will proclaim that business is great (“never been better”) for well-run businesses…what, TOO specific? Sorry….

I think we’ll continue to see an uninspiring “two steps forward, one back” recovery with the hyperbole-prone media exaggerating each one of them, but the thoughtful amongst us will realize that if you’ve gone down 20%, but then up by 25%, you haven’t gone anywhere for 2 years.

Cathy Hotka
Guest
11 years 7 days ago

Regardless of what the numbers are, retailers are in a really wonderful mood. That air of optimism is translating into new IT projects that can take the business in new directions….

Ed Rosenbaum
Guest
11 years 7 days ago

Yes it is May; but I think it is too early to do anything but guess how retailers will perform the balance of 2010. I still think we will see more store location closings than openings.

W. Frank Dell II
Guest
11 years 7 days ago

The jumping for joy could be early. First back out inflation and you have a two month increase of 2.4% combined month increase which could easily be customers changing stores. Considering the number of retailers that have departed a 2% swing to the remaining retailers does not indicate any growth.

What we are seeing is pent up demand for need items. This is from consumers that have a job. They believe the layoffs are over and they have and will continue to have a job. Thus they will spend for their needs. The want items will have to wait for now. As consumers get jobs, they will take care of paying down debt and then needs. Until the stock market increases by more than 8%, I don’t expect to see much of a sales increase until the holidays.

John Crossman
Guest
John Crossman
11 years 6 days ago

Overall, I see more positive signs than negative ones, which is good. Having said that, it is no time to rest. Retailers must stay focused on customer service and develop brand loyalty. In addition, as more shopping centers go into foreclosure, some retailers find some unique opportunities for growth.

Shilpa Rao
Guest
11 years 4 days ago

Yes, the consumer confidence is high and yes the sales are good. But let’s not forget in a global economy, no country remains unscathed when other is in crisis. With the debt crisis just across the pond, I think we should hold our horses a little bit longer before we rejoice.

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