July 6, 2012
June Brings Summertime Blues
June’s monthly retail results were reportedly the worst in more than two years, raising concerns about a possible slowdown in consumer spending just ahead of the critical back-to-school selling season.
The 18 retail chains tracked by Thomson Reuters saw a combined 2.5 percent rise in June sales. That compared with a 7.7 percent surge in June 2011 and was the lowest since November 2009 when sales inched up 0.9 percent. More than half of the stores reporting missed already-muted Wall Street expectations.
In addition to national and global economic concerns, playing some role in the meager sales growth was said to be unseasonably warmer weather earlier in the year that boosted sales of warm-weather apparel and goods in February and March at the expense of recent months. The tropical storm in the Southeast, massive power outages in the mid-Atlantic region and fires in Colorado also could have had an impact.
June was the third month of weak growth for same-store sales, according to IHS Global Insight, which is now forecasting that consumer spending, adjusted for inflation, will advance 1.5 percent for the second quarter compared with the first quarter’s 2.5 percent increase.
Notable shortfalls were felt by Kohl’s, where comps slid 4.2 percent, and Macy’s, which saw only a 1.2 percent rise, below the 1.9 percent analysts expected. In addition to blaming renovations at its New York flagship, Macy’s Chief Executive Terry Lundgren, said, "This was a function of a macroeconomic environment that is stagnant at best, and lower spending by tourists in cities such as New York."
Target Corp.’s same-store sales rose 2.1 percent in June, below analysts’ expectations of 2.4 percent, although the discounter said it is on track to meet its second-quarter sales and earnings guidance.
Costco’s comps rose 3 percent, but missed its 3.7 percent estimate. The warehouse club said it was hurt partly by July 4th falling on a Wednesday this year versus Monday last year.
Bucking the trend were high-end retailers such as Nordstrom, with comps up 8.1 percent, and Saks, ahead 6.0 percent. Off-price apparel chains TJX Cos and Ross Stores both delivered 7 percent comp gain, believed to be benefiting from mid-tier department store customers trading down.
- Discounters, High-End Stores Fared Best in June – Wall Street Journal
- Growth in Retail Sales Slows From Last Year’s Numbers – New York Times
- Retail sales at major chains up a weak 0.1% in June – Los Angeles Times
- Did mild winter melt June sales? – CBS Marketwatch
- Retailers post worst June sales in three years – CBS Marketwatch
- Retailers’ June Sales Little Changed While Luxury Gains – Bloomberg
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Discussion Questions
Discussion questions: How would describe the spending mood of today’s consumers? Which factors may particularly be weighing on consumer confidence? Are you more or less optimistic about the retail outlook vs. earlier in the year?
Poll
With few exceptions (at the high end and low end of the price spectrum) June’s results were mediocre at best. Even stronger performers like Macy’s and Target have hit a bump in the road for the past couple of months, paralleling the overall economic picture. The jobless report for June that was just released was likewise stuck in neutral.
While there are some signs of optimism — slight upticks in consumer sentiment, lower gas prices, recovery in the housing market — they have not driven hiring to the point where consumers feel “permitted” to spend. I would watch for a difficult BTS compared to 2011’s solid numbers, but I would also expect some lightening of the mood after the election — no matter who wins.
Right now the economy seems to be continuing its boom of the past three years. Many of us have seen our net worth catapult to the next level with stock market increases and interest rate decreases. I think consumers now realize that the recession back in 2008 really wasn’t that bad. Real unemployment among skilled workers is only about 2%. Reported unemployment figures might be a little high, but once the unemployment checks run out, those people will opt back into the workforce.
When I see the strong same-store sales occurring at Whole Foods, The Fresh Market, and many other grocers, I am very encouraged. I think some factors that affect consumer confidence are cash flow, net worth, interest rates, and a hopeful Republican control of the economy. Based on all the positive trends, I am very optimistic.
Right this minute, sentiment is down. In an hour, sentiment will be up. We are living in a world of instant everything. The news is no longer trying to report the news, the news is creating the news.
Things are getting better at this point, but until we learn to adapt to our new world, it is going to be a long time or maybe never until things get better as they used to be.
Middle income consumers tend to be “event” buyers for back-to-school and holidays, however, I have never believed that consumers hold back their spending at one time of the year in anticipation of spending more for upcoming retail events. What middle income consumers spend “in the now” is driven and restricted by current variables such as gasoline prices, weather, and retail shopping boredom. If middle road retailers want to increase business in months like June, and all year long, they need to increase the market basket spend of each consumer that parks a car and comes into the store. And one way to increase the spend is to carry some specialties and new items that will excite and motivate an otherwise bored consumer.
Boy, I have rarely seen so many excuses in one article. I recently saw a t-shirt that said, “The older I get the better I was.” It’s high time for retailers to quit blaming the weather, macroeconomics, tourists, etc., and start getting more creative and driving excitement in their stores and online. In the interim, we’ll hear more about the weather.
In a word — caution.
The BIGinsight Monthly Consumer Survey, released in mid-June, pointed out that Consumer Confidence dropped once again, with just 31.3% of Adults feeling Confident/Very Confident about a strong economy in the next 6 months. Further, in June, the consumers were pessimistic about employment outlooks, with 27% saying they felt that there would be more layoffs in the next 90 days (today’s jobs report indicated that only 80,000 new jobs were created in June).
The consumer is showing a rising tendency to act in a “practical” manner, with 54.7% saying they are focused on needs over wants. Fully one-third point to their number one financial plan over the next six months is to pay down debt. The great deleveraging continues.
Back-to-School will happen, but consumers are going to be practical and cautious. For added insights, take a look at this 4 minute video.
Al McClain is a marketing guy — who would have known!?!
Seriously, as a marketing type in impulse food categories (snacks and beverages) for most of my career, I got really tired of hearing the Sales guys give us “the weather report” when we missed forecast. But eventually I learned that consumers really do dial back activity (and related impulse purchases) during unseasonably hot weather.
Having said that, I think there is more than a warm summer impacting retail right now. There is an underlying unease among consumers. I’m not sure if it is driven by uncertainty or by concern over the apparent direction of the country. But it is palpable.
We also have a historically large number of people (8.2% again this month) who are assumed to have less disposable income than they would if they were working. Perhaps they are saving up for the BTS expenses soon to come — although behavioral research does not show this to be their typical pattern.
As for stock market wealth improving our spending outlook — who really feels confident that today’s paper profits will be there by October? Are you willing to go buy a new Lexus with that? Or is the global uncertainty so well publicized and pervasive that the weather in the U.S. remains cloudy? I think consumers are still carrying their umbrellas to shop.
I just heard new research that says consumers are “more confident and optimistic” than they have been in a long time. Job growth is tepid. How do we expect retail sales to grow? I am more confused than optimistic, but I am definitely not confident.
The buying public is more optimistic than in the recent past couple years. Optimistic, with a want to hold onto the spendable income until there is more certainty in the economic recovery. Sometimes the fear of returning to the past forces us to hold onto what we have longer.
Keep in mind, the numbers discussed show a slower growth than last year, so it’s important to think of the aggregate as a considerable improvement to 2 years ago. Consequently, I’m no less cautiously optimistic than in January.
Another key factor; we always used to say, “weather plays,” meaning retail sales are really affected by the extremes in weather. Storms, blizzards and yes, heat waves can really knock your projections off the blocks, especially if the weather hits a third of the country. Think of it; how much do you feel like buying when it’s over 100 degrees outside and your power is out? Other than ice cream and frosty beer, that is.
I’m zooming in on the peculiar state of a high-margin, discretionary category: apparel. No other category illustrates the ongoing high/low dynamic better with Nordstrom/Saks on one end of the success story and TJX/Ross on the other. That isn’t all there is to it, though. Apparel has been operating in a relatively trend-less state for quite some time and the warming trend has meant that any wear-now retailer with forecasting chops will be carrying cheaper, throw-away summer clothing a lot longer than they had hoped. The only bright spot has been accessories, an ongoing weakness for mass retailers and middle-of-the-road players. If apparel can fool the eye, accessories and footwear always remind shoppers where they’re really shopping.
The persistent economic uncertainty for most consumers has created an environment of a bit more saving vs. consuming (a good long-term trend) and more careful purchasing decisions. If media would be more balanced rather than overly negative, consumers might actually realize they are still quite well off and be more willing to spend….
The wealthy of course are generally immune to this and continue to spend — although even they are more careful now than previously.
I don’t know about consumers, but here in California the Assembly is definitely in a spending mood! (HSR probably won’t show up in the retail stats, but maybe we can get a deal on Groupon or something.) Anyway, back on topic: it’s misleading for claims to be made that sales are “the worst in X years” just because the rate of increase was; in reality, sales are probably the highest they’ve ever been. That having been said, though, I think it’s also safe to say few will be excited by the numbers (Mitt Romney’s election staff maybe being an exception): call it a Great Recession or Depression-Lite, but the country has never really gotten back on track after the last crisis. I don’t see that changing in the months ahead.
The mood of many shoppers is caution and retain cash. They have cut back on the size/length of vacations and on unneeded spending. The metrics are everywhere on these topics. The optimism is still there, but people are slower to buy. Weather will be an issue soon and retailers do need to crank up the creative and tune the assortments to align with the economic moods of the shoppers that they serve.
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With few exceptions (at the high end and low end of the price spectrum) June’s results were mediocre at best. Even stronger performers like Macy’s and Target have hit a bump in the road for the past couple of months, paralleling the overall economic picture. The jobless report for June that was just released was likewise stuck in neutral.
While there are some signs of optimism — slight upticks in consumer sentiment, lower gas prices, recovery in the housing market — they have not driven hiring to the point where consumers feel “permitted” to spend. I would watch for a difficult BTS compared to 2011’s solid numbers, but I would also expect some lightening of the mood after the election — no matter who wins.
Right now the economy seems to be continuing its boom of the past three years. Many of us have seen our net worth catapult to the next level with stock market increases and interest rate decreases. I think consumers now realize that the recession back in 2008 really wasn’t that bad. Real unemployment among skilled workers is only about 2%. Reported unemployment figures might be a little high, but once the unemployment checks run out, those people will opt back into the workforce.
When I see the strong same-store sales occurring at Whole Foods, The Fresh Market, and many other grocers, I am very encouraged. I think some factors that affect consumer confidence are cash flow, net worth, interest rates, and a hopeful Republican control of the economy. Based on all the positive trends, I am very optimistic.
Right this minute, sentiment is down. In an hour, sentiment will be up. We are living in a world of instant everything. The news is no longer trying to report the news, the news is creating the news.
Things are getting better at this point, but until we learn to adapt to our new world, it is going to be a long time or maybe never until things get better as they used to be.
Middle income consumers tend to be “event” buyers for back-to-school and holidays, however, I have never believed that consumers hold back their spending at one time of the year in anticipation of spending more for upcoming retail events. What middle income consumers spend “in the now” is driven and restricted by current variables such as gasoline prices, weather, and retail shopping boredom. If middle road retailers want to increase business in months like June, and all year long, they need to increase the market basket spend of each consumer that parks a car and comes into the store. And one way to increase the spend is to carry some specialties and new items that will excite and motivate an otherwise bored consumer.
Boy, I have rarely seen so many excuses in one article. I recently saw a t-shirt that said, “The older I get the better I was.” It’s high time for retailers to quit blaming the weather, macroeconomics, tourists, etc., and start getting more creative and driving excitement in their stores and online. In the interim, we’ll hear more about the weather.
In a word — caution.
The BIGinsight Monthly Consumer Survey, released in mid-June, pointed out that Consumer Confidence dropped once again, with just 31.3% of Adults feeling Confident/Very Confident about a strong economy in the next 6 months. Further, in June, the consumers were pessimistic about employment outlooks, with 27% saying they felt that there would be more layoffs in the next 90 days (today’s jobs report indicated that only 80,000 new jobs were created in June).
The consumer is showing a rising tendency to act in a “practical” manner, with 54.7% saying they are focused on needs over wants. Fully one-third point to their number one financial plan over the next six months is to pay down debt. The great deleveraging continues.
Back-to-School will happen, but consumers are going to be practical and cautious. For added insights, take a look at this 4 minute video.
Al McClain is a marketing guy — who would have known!?!
Seriously, as a marketing type in impulse food categories (snacks and beverages) for most of my career, I got really tired of hearing the Sales guys give us “the weather report” when we missed forecast. But eventually I learned that consumers really do dial back activity (and related impulse purchases) during unseasonably hot weather.
Having said that, I think there is more than a warm summer impacting retail right now. There is an underlying unease among consumers. I’m not sure if it is driven by uncertainty or by concern over the apparent direction of the country. But it is palpable.
We also have a historically large number of people (8.2% again this month) who are assumed to have less disposable income than they would if they were working. Perhaps they are saving up for the BTS expenses soon to come — although behavioral research does not show this to be their typical pattern.
As for stock market wealth improving our spending outlook — who really feels confident that today’s paper profits will be there by October? Are you willing to go buy a new Lexus with that? Or is the global uncertainty so well publicized and pervasive that the weather in the U.S. remains cloudy? I think consumers are still carrying their umbrellas to shop.
I just heard new research that says consumers are “more confident and optimistic” than they have been in a long time. Job growth is tepid. How do we expect retail sales to grow? I am more confused than optimistic, but I am definitely not confident.
The buying public is more optimistic than in the recent past couple years. Optimistic, with a want to hold onto the spendable income until there is more certainty in the economic recovery. Sometimes the fear of returning to the past forces us to hold onto what we have longer.
Keep in mind, the numbers discussed show a slower growth than last year, so it’s important to think of the aggregate as a considerable improvement to 2 years ago. Consequently, I’m no less cautiously optimistic than in January.
Another key factor; we always used to say, “weather plays,” meaning retail sales are really affected by the extremes in weather. Storms, blizzards and yes, heat waves can really knock your projections off the blocks, especially if the weather hits a third of the country. Think of it; how much do you feel like buying when it’s over 100 degrees outside and your power is out? Other than ice cream and frosty beer, that is.
I’m zooming in on the peculiar state of a high-margin, discretionary category: apparel. No other category illustrates the ongoing high/low dynamic better with Nordstrom/Saks on one end of the success story and TJX/Ross on the other. That isn’t all there is to it, though. Apparel has been operating in a relatively trend-less state for quite some time and the warming trend has meant that any wear-now retailer with forecasting chops will be carrying cheaper, throw-away summer clothing a lot longer than they had hoped. The only bright spot has been accessories, an ongoing weakness for mass retailers and middle-of-the-road players. If apparel can fool the eye, accessories and footwear always remind shoppers where they’re really shopping.
The persistent economic uncertainty for most consumers has created an environment of a bit more saving vs. consuming (a good long-term trend) and more careful purchasing decisions. If media would be more balanced rather than overly negative, consumers might actually realize they are still quite well off and be more willing to spend….
The wealthy of course are generally immune to this and continue to spend — although even they are more careful now than previously.
I don’t know about consumers, but here in California the Assembly is definitely in a spending mood! (HSR probably won’t show up in the retail stats, but maybe we can get a deal on Groupon or something.) Anyway, back on topic: it’s misleading for claims to be made that sales are “the worst in X years” just because the rate of increase was; in reality, sales are probably the highest they’ve ever been. That having been said, though, I think it’s also safe to say few will be excited by the numbers (Mitt Romney’s election staff maybe being an exception): call it a Great Recession or Depression-Lite, but the country has never really gotten back on track after the last crisis. I don’t see that changing in the months ahead.
The mood of many shoppers is caution and retain cash. They have cut back on the size/length of vacations and on unneeded spending. The metrics are everywhere on these topics. The optimism is still there, but people are slower to buy. Weather will be an issue soon and retailers do need to crank up the creative and tune the assortments to align with the economic moods of the shoppers that they serve.