Retailers Had Something to Cheer About in January
Despite flagging consumer confidence, U.S. retailers rang up stronger-than-expected sales in January, thanks to sweeping discounts on merchandise.
But analysts say shoppers remain cautious, which means retailers probably will keep marking down prices. In fact, January clearance sales could stretch into June this year, analysts say, a scenario that could squeeze retailers’ profits.
Nationwide, sales at stores open at least a year moved up 4.8% from the same month in 2000, according to Bank of Tokyo-Mitsubishi Ltd. The firm had forecast an increase of 3.5% to 4%.
“Consumers responded to enticement,” said Steve Paspal, a retail analyst with John Hancock Funds. “They are not so scared of a recession that they are cowering in their homes.”
Among major retailers, Wal-Mart Stores Inc. said same-store sales rose 5% in January, sales at Kmart Corp. stores rose 4.3% and Costco Cos. logged a 4% increase. January sales climbed 2.6% at Sears, Roebuck & Co. and edged up 2.1% at Target Corp.
“But what you saw is not necessarily what you got,” said Mike Niemira, an economist with Bank of Tokyo-Mitsubishi. “We had a lousy Christmas and consequently there was a lot of merchandise left over on the shelves and on the racks to sell.”
To help spur January sales, retailers slashed prices on a wide variety of items, including clothes, housewares and electronics, making way for spring merchandise.
The sales gains came amid deteriorating consumer confidence, which last month took its steepest dive in more than a decade. Indeed, a bright blip in January does not indicate that shoppers are feeling more optimistic, cautioned University of Michigan economics professor Richard Curtin, who tracks consumer confidence monthly.
People did more shopping than expected in January partly because in many areas of the nation the weather was too miserable to venture out in December, Curtin said, adding that consumers remain worried about the prospects of slower income growth and layoffs in the year ahead.
“I think it would be wrong to think that [the strong January sales] indicate there is no problem in the economy,” he said.
Though discounts may keep store cash registers ringing, analysts worry that the strategy will hurt profits. In fact, some chains have already warned that discounts in the critical holiday season resulted in disappointing profits in the fourth quarter.
Specialty apparel chain Gap Inc. said its quarterly profit will miss expectations, and AnnTaylor Stores Corp. warned that fourth-quarter earnings would be less than half of what the company projected.
Some analysts think shoppers will shift into higher gear in the second half of the year, partly due to two recent interest rate cuts by the Federal Reserve. But others think it is too early for optimism, partly because Americans are already saddled with debt.
“Consumers may have a willingness to spend, but they don’t have the ability,” said economist Niemira.
Some stores bucked the trend. Talbots Inc., for example, said its fourth-quarter earnings beat analysts’ average.
Investors were not impressed by the relatively strong sales reports. Retail shares have rallied in recent months, but Standard & Poor’s index of retail stocks moved down 34.21 points, or 4%, to 873.57 on Thursday.
Stores that cater to youth generally are doing well despite signs of a slowing economy because young people are less shackled by financial worries than their parents, said retail analyst Kurt Barnard.
“They earn money, but they have no financial obligations,” Barnard said. “The only obligation the store has is to present fashions that appeal to them.”
At Pacific Sunwear of California Inc. in Anaheim, sales rose a whopping 67.3% to $36.8 million for the five-week period ended Feb. 4, while same-store sales rose 3.8%. Wet Seal Inc.’s same-store sales rose 23.3% for the four-week period ended Jan. 28.
Analysts say Wet Seal’s gains were particularly encouraging because the Foothill Ranch-based company has been struggling in recent years. Wet Seal expects to release estimated earnings for fiscal 2000 later this month and final results March 21.
Striking the right fashion note is all important for companies that cater to teens and young adults. And this year they may not have to be too imaginative, as old standbys have become the hot sellers. Young shoppers have been snapping up denim, hooded sweatshirts, feminine sweaters and athletic shoes.
“The uniform of 2001 seems to be shaping up to be jeans and sneakers,” said Joseph Teklits, an analyst with Ferris Baker Watts.
Times wire services were used in compiling this report.
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Retail Growth
Same-store sales in January, compared with the same month a year earlier, for department stores, discount stores, specialty/apparel stores and warehouse clubs. Sales are for stores open at least a year.
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