Retail Industry Trends

[HenryTo]

Retailiers already bracing for the worst. The $64 billion question is, as always, how bad will this get and how much of this has already been factored into retail stocks?
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Retail Holiday Season May Be Modest
Tuesday October 30, 5:15 pm ET
By Betsy Vereckey, AP Business Writer
Sluggish US Economy May Weigh on Holiday Sales for National Retailers

NEW YORK (AP) -- U.S. retailers are bracing for a difficult holiday season, some industry watchers say, as higher gas prices and a sluggish housing market are expected to continue crimping consumer spending.

At a conference on Tuesday hosted by the Retail Marketing Society, a membership-based organization focused on the retail industry, some industry executives said holiday sales may be sluggish.

"This holiday season will be somewhat Grinch-like," said Carl Steidtmann, chief economist at Deloitte Research.

Steidtmann said retailers are preparing for the worst, especially given tightening credit and problems in the housing market. Steidtmann said it will be at least 18 months to two years before the housing market bottoms.

Merrill Lynch analyst Jaime Sheinheit said higher energy costs will weigh on consumer spending, noting that retailers have had trouble getting customers in the door. However, it's hard to tell whether the sluggish traffic is related to softening consumer spending or warm weather, Sheinheit said.

"Cold weather may spark shopping," she said.

In the luxury sector, Sheinheit said handbag maker Coach Inc. has warned of sluggish traffic in its U.S. stores. The company recently issued a fiscal second-quarter same-store sales outlook it called "conservative." Same-store sales are sales at stores open at least a year, and the industry metric is considered a key barometer of a retailer's health.

David Wolfe, creative director at Doneger Group, a buying office, said Coach has reached its saturation point with aspirational customers, who may not have the money to spend on these handbags but still want quality at a price.

Meanwhile, wealthy customers may help other luxury retailers this season, like Tiffany & Co., as spending patterns among the affluent tend to stay the same, regardless of changes in the economy.

Sectors that might fare better include teen retailers, Sheinheit said, noting that the income of their main customer, teenagers, usually stays the same. Companies in this sector include American Eagle Outfitters Inc. and Abercrombie & Fitch Co.

One company that may emerge stronger, Sheinheit said, is AnnTaylor Stores Corp., which has leaner inventory and a new product assortment at its lower-priced Loft division. In August, the company said it increased markdowns to reduce inventory heading into fall seasons at both its Ann Taylor and Loft stores.

"There is a lot of opportunity for Loft to improve margins this holiday season," Sheinheit said. "As always, what it comes down to is having the right product."

[rffrydr]

Hello savings culture! Thanks OPEC. Of all people you should know the parable of the straw and the camel:

http://www.nytimes.com/2008/11/29/business/29charts.html?ref=business
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Perfect 22 year record. Can it hold?

[rffrydr]

Worst sales stats "in history.":

http://biz.yahoo.com/ap/081114/economy.html


OD, do you have any anecdotal recollections of the great renouncing of credit (card) debt under Carter--when rejecting credit became a patriotic duty? It didn't last. Was it just the freespending ways of the Boomers or was there something more specific to the turn you remember?
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Having "championed" the idea of an extended consumer-led recession this is not the wisest of predictions, but fools have much company these days. So here goes: the combined effects of gas, credit and politics will mark this quarter as the low point in actual auto sales.

http://detnews.com/apps/pbcs.dll/article?AID=/20081103/AUTO01/811030413

Caught in the pincers of 4.27/gallon ave. gas; 700plus credit qualifying; unwanted trade-ins; the slow twist of lease payments, collapsing savings, and a mindset of nothing-less-than the reinvention of the automobile ... but that's the beginning of the difference.

This economy is already lean and mean. That is the legacy of the Millenial top. Tech and a repositioning in manufacturing to a "platform" model will insulate job losses on the downside. Watch out china. And since we live and breathe credit, a world without it cannot be contemplated. That means it won't happen. The lease to over-reach may be over but the world remains a buyer for those returns. Meanwhile my aunt fills up premium today at 2.11/gal and the minivan can stand only so much abuse from the kids. Cars break. The fleet is held longer now (trucks age more favorably, which was part of their attraction) but the impulse to trade-in was strong already a year ago. This will build. And, in the heartland, this is a nation that will sell its soul for a truck.

As a backdrop. The necessary infrastructure spending likely the focus of increased fiscal policy will carry the great american truck right along with it. The farmer and oilman, the wealth among us, will also be supportive. This, of course, favors Detroit.

60% of consumer spending is by the top eschelon of earners. That takes out the DB7s and Masserattis. But with these kind of price points and breaks on imputs those that can, will. And those that can will remain much more than say the 82 recession when jobs were the target.

Projections at sub '93 levels cannot be maintained if only on the basis of population and relative currency weakness. We've got commodity producers on either side. It's the first thing an immigrant wants (look for more of these back from india, china etc).

New models are coming at a terrific pace, set for full electrics in a year and a half. A new President brings new hope and new confidence. Look for the press to start talking "peace dividends" soon. Look for Iran to deliver it--of necessity.

More's to be said but suffice it to say that the "mark-to-market" is in. Unlike stocks and bonds the family car has a tangible value--and can be moved from home to apt.? Look for "savings" to yet again be transmorgified into spending in some new twist. A simple leveling off will do much for this series. Big screen TVs may come and go but the american car is here stay.

Let's see.

http://www.marketwatch.com/news/story/goodyear-revenue-growth-bucks-weak/story.aspx?guid=%7B9BDBC3D2-3699-4C79-B6D2-403AA2C246C5%7D&dist=msr_44[/url]
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Oops...meant billion; equal to TARP:

http://media.bloomberg.com/bb/avfile/Economics/On_Economy/v0YE7B3GeRuc.mp3

This is getting surprising short shrift among other economists--who are thinking bounce back to 90-100 range. 50 is a real game changer--with the added bonus that it might bring peace to the Middle East

No more financing of Hezbollah et. al. via Iran...perhaps.

Airlines, as expected however, are full of hedges over $100 which have to be accounted for immediately. Apparently their hoping for a rally so they don't look so bad. Southwest is the lowest at $62.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Quick "back of the envelope calculation":

The US imports about 10 million barrels/day of crude oil and about 13 million barrels in total hyrdocarbon liquids:

http://tonto.eia.doe.gov/dnav/pet/pet_move_imp_dc_NUS-Z00_mbblpd_a.htm

Simply taking the crude oil number, we know that for every $10 drop, this adds about $100mm a day to the domestic economy. On an annualized basis, this equates to $36.5 billion, or 0.27% of GDP or 0.40% of US consumer spending.

During the 3rd quarter, the spot price of crude oil averaged US$119. Since then, it has plunged to $64 a barrel. That equates to $55 a barrel, or an addition of $200.75 billion (1.5% of GDP, or 2.2% of consumer spending) to the domestic economy on an annualized basis. Assuming the ECB and the Bank of England cuts dramatically over the next few weeks, and assuming the USD weakens, a contraction of US GDP during the fourth quarter is not inevitable.

[rffrydr]

Heard a stat today: every $20 drop in crude is 700million to global economy.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

The consumer engine is still running, although definitely not has strongly as this time last year. The rapid decline in energy and general commodity prices will help too - especially for the retailers that are left standing. Will be interesting to see how the "Halloween Hangover" pans out - and what the next Congress/Treasury is going to do about it.

[rffrydr]

It's not the worst...yet. Someone forgot Halloween--now that's discretionary.

http://www.latimes.com/business/la-fi-halloween25-2008oct25,0,5221041.story



Scaring up a profit


"For some reason, I'm going all out this year," said Kurtz, a voice-over actress from Studio City who planned to spend $500 on the holiday, up from $100 last year. "I don't know -- I'm just having a really fun time and all my friends are doing it too. Anything is a good distraction from reality."
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Brace for some bankruptcy filings - followed by liquidation - in the retailing industry before the Christmas shopping season:
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Some retailers may choose bankruptcy before Christmas
Fri Oct 24, 2008 5:39pm EDT

By Caroline Humer and Jessica Wohl - Analysis

NEW YORK/CHICAGO (Reuters) - The conventional wisdom for retailers having financial difficulty has been to stave off bankruptcy until after the holiday season, but cracks in that thinking are starting to show and fewer companies may make it past the new year.

Tumultuous financial markets, flagging consumer confidence and cautious lenders are undermining the efforts of struggling retailers to stay in business, restructuring experts say. And many retailers hoping to ride out the storm face tough choices about store closings, and ways to raise cash.

Industry experts say some of these companies may even find themselves going straight to liquidation rather than restructuring.

"There are five or six public companies that are teetering right on the brink and given this credit environment frankly they could go away any moment. Anything can happen," said Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates.

By this time of year, most retailers have their stock for holiday shopping, which enables them to hold out against financial pressure until after the season.

"Orders have long since been placed and shipments have been made. Inventories have been built up for the holidays," said Craig Johnson, president of Customer Growth Partners, a consumer consulting and research firm.

But that inventory build-up depletes cash, giving retailers few options if they run into trouble.

As a global financial crisis deepens, and consumers spend less over the holidays, this year could be different.

"My own opinion is that we will see more store closures before the holidays and more bankruptcy filings before the holidays," said Walter Jones, a turnaround consultant at J.H. Cohn LLP in New Jersey.

If they are facing bankruptcy, retailers must focus on keeping only their best stores going, he said. "By closing more stores, they produce more cash from the inventory in those stores, which would generally give them more options," Jones said.

Retailers' cash positions typically peak just before the new year, putting them in the strongest position to file for bankruptcy protection and reorganize, experts said.

"The way the game is played is to suck in the suppliers, build up your cash, then file. That puts you in the best position to come out on the other side," Davidowitz explained. "It buys you more time."

TOUGHER DIP

If retailers manage to come out on the other side of the holidays, the next hurdle will be finding sources for debtor-in-possession financing to get through bankruptcy. Many of those sources have dried up as credit markets tightened and banks became more risk averse.

Companies will have to turn to their existing lenders for a shot at securing increasingly pricey DIP funding, giving their current bankers a larger role in how those bankruptcies proceed.

"It's unclear to me whether existing lenders will think they are better off to wait until after Christmas," said David Heiman, a bankruptcy attorney at Jones Day. That is particularly true if loans are based partly on inventory, which will be reduced by holiday sales, he said.

But some merchants may not be able to take in as much stock as they would like to so they can compete during the holiday season, Johnson said.

He cited consumer electronics retailer Circuit City, which has been facing stiff competition from Best Buy and Wal-Mart. A Circuit City spokesman declined to comment.

Some retailers have come under pressure from credit rating agencies ahead of the holiday season. Standard & Poor's has assigned a "B-" or lower credit rating to Eddie Bauer Holdings, Claire's Stores Inc, Guitar Center, Loehmann's and Oriental Trading Co, meaning their debt is regarded as highly speculative or with substantial risks.

Department store group Gottschalks Inc recently said its stock would no longer be traded on the New York Stock Exchange, but that it had been working to shore up its liquidity.

"It's a safe bet to say that there is going to be some shakeout in the industry," said National Retail Federation spokesman Scott Krugman. "But at the end of the day, it's healthy. It's healthy because it creates a more nimble economy and from a retail industry perspective it creates an industry that's better poised for recovery."

[rffrydr]

Set up for a Chrismas surpise (at the very least the EEM shoppers will turn out):


http://www.freep.com/apps/pbcs.dll/article?AID=/20080918/BUSINESS06/809180412/1019/BUSINESS06
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Note that retailers - as exemplified by the RTH - actually made a new YTD earlier this month:

http://finance.yahoo.com/q/bc?s=RTH&t=1y

[rffrydr]

· COST said that California continued to lag the rest of the country basis comp sales, but it did improve relative to several months ago.



· noted that the dollar was starting to hurt international comps. International comps were +8% in local terms but +6% on a dollar basis.



· reported strength in food, but also noted that gasoline sales were very positive to sales by 350 bps.



· average transaction was up by more than 5% helped by gasoline, and traffic was up slightly more than 3%.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Latest web traffic data at luxury retail stores:

http://blogs.abcnews.com/click/2008/08/luxury-retail-h.html

[HenryTo]

ICSC expecting the slowest sales growth for the Holidays since 2001 - but my guess is that even a 3.6% growth forecast is too optimistic. We shall see.
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U.S. holiday sales seen slowest since 2001 -- ICSC
Wed Aug 27, 2008 5:00pm EDT

NEW YORK, Aug 27 (Reuters) - U.S. holiday sales are expected to grow at the slowest rate since 2001 as consumers pull back spending in a weak economy, according to a survey by the International Council of Shopping Centers.

For the holiday season, the biggest sales period of the year for retailers, nominal sales growth is forecast at 3.6 percent compared with a 4.2 percent gain last year, ICSC's chief economist Mike Niemira said on Wednesday during a call with analysts.

"No matter how you cut it, the indications suggest there is likely to be continued sluggish ... trends in spending," Niemira told analysts.

The slowdown in holiday spending would follow back-to- school trends now unfolding, as consumers are also expected to spend the least since 2001.

The ICSC expects that an average $400 will be spent on back-to-school items this year, compared with an average of around $470 last year, as consumers stick to the basics such as clothes and supplies and shop at discount stores instead of malls.

"The consumer is not necessarily just not shopping at the mall, they're just not shopping as much everywhere," Niemira said.

While tax rebate checks issued early this summer by the U.S. government helped prod consumers to the store, they spent less when they got there, hurt by higher food prices that are canceling out easing gas prices, Niemira said.

"The consumer faces tough times ... we also expect these tough times will linger even in the face of easing of gasoline price pressure on consumer spending," Niemira said.

The ICSC expects chain store back-to-school sales to be up 1 percent this year to $38.5 billion, the smallest gain since 2001. (Reporting by Sarah Coffey; Editing by Andre Grenon)