Rebates in hand, shoppers hit aisles
Shoppers, some armed with tax rebate checks, spent more than forecast at discount and wholesale stores in May and boosted U.S. retail sales.
Analysts had anticipated a slow month as people grappled with the housing slump, stringent credit and skyrocketing gasoline prices. Even as checks from the federal economic stimulus package began arriving, many Americans funneled the money into savings or paid bills, and those who ventured into stores exercised caution, experts said Thursday.
“It’s much weaker than last year, suggesting that there is a consumer slowdown because of all the macroeconomic issues,” said Jharonne Martis, senior research analyst for Thomson Reuters.
Still, total chain store sales climbed 3% in May from the same month last year, surpassing the 1% estimate, according to numbers released by the International Council of Shopping Centers Inc.
Discount retailers experienced the biggest gains, including Wal-Mart Stores Inc., which saw a 3.9% jump in U.S. same-store sales, excluding expenditures for fuel. It reported strong sales of groceries and health, wellness and entertainment products. Costco Wholesale Corp. gained 9% companywide.
Target Corp., the second-largest discount retailer, fell 0.7% as middle-class shoppers gravitated toward less expensive products at Wal-Mart.
“Even within discounters, consumers are trading down,” Martis said. “Everyone is spending, but they’re all being much stingier.”
The shopping centers council said its compilation of 37 chains showed that specialty stores and apparel businesses faltered in May.
Vladimir Borges, co-owner of Kendo on Melrose Avenue in L.A., which sells rare sneakers, said people were stopping by to look but not to purchase.
“The specialty market isn’t usually affected by the economy because the people who are into it are always into it. But nowadays it’s pretty obvious it’s slowed down,” he said. “People complaining about having to spend $100 on a tank of gas are usually not thinking of spending $100 on a pair of shoes.”
In June, the council said, retail sales should grow 2.5% to 3% as the tax rebate checks reach more consumers.
The Treasury Department said May 30 that it had sent out 57.43 million stimulus payments -- worth $50.04 billion -- about half of the expected total.
A retail-sales spike that followed similar rebate stimulus measures in 2001 was short-lived, lasting only about three months, Martis said.
But now businesses are also dealing with plunging consumer confidence, which fell to a 16-year low in May, according to the Conference Board, a business research organization.
Many shoppers are waiting to see if this week’s decline in oil prices will translate into lower prices at the gas pump, said Kevin Klowden, a managing economist at Santa Monica-based Milken Institute.
“People have shifted more to necessities now that the holiday retail season is over,” Klowden said. “Take these numbers with a grain of salt -- the real test is whether things stay up this following month.”
Wal-Mart shares went up 3.7% to $59.80 in afternoon trading; Costco rose 3.8% to $73.50. Shares of specialty retailer Chico’s FAS Inc., whose sales slumped nearly 17% in May, were down 1.4% to $7.55.
With consumers focused on stretching their dollars, the overall discount sector trumped May 2007’s 2.6% growth to reach 4.2% this May, according to the Thomson Reuters same-store sales index.
Club warehouses such as Costco were buoyed by gasoline prices that were up 19% this May, compared with May 2007, as well as robust foreign exchange rates that lead to good international sales.
The Thomson index reported a 13.4% boon for BJ’s Wholesale Club Inc. and a 3.6% leap for Wal-Mart’s Sam’s Club.
The 36 retailers included in the Thomson Reuters index collectively beat expectations by rising 1.2% in May, excluding Wal-Mart. Analysts said the weak increase, compared with the 4.4% boom last May, showed the decline of discretionary and “aspirational” shopping.
Although other retail industry sectors had standouts -- teen retailer the Buckle Inc. led sales figures with a 34.7% May increase following nearly a year of steady double-digit growth -- consumers were mostly not in the mood for shopping at apparel, department and specialty stores.
San Francisco-based Gap Inc. and Foothill Ranch-based Wet Seal Inc. took 14% and 2% hits, respectively.
Department stores were the weakest of the group, dropping 3.8%, according to the Thomson Reuters index. Gottschalks Inc. plunged 8.6%, while Saks Inc., which surprised many in April with promotions, markdowns and a 24% sales bump, slipped 8.7% in May.
Nordstrom Inc. scored a healthy 10.9% improvement because of an earlier start date for its Half-Yearly Sales for Women and Kids, but the company is projecting an 18% to 22% drop in sales in June.
The apparel sector -- especially mall-based stores -- suffered in May. Stein Mart Inc. fell 12.4%, and Victoria’s Secret parent Limited Brands Inc. dropped 6%. But prom season helped dress chain Cache Inc. gain 5%, while bargain-hunting consumers pushed off-price retailer Ross Stores Inc. to 7% growth.
As the peak summer traveling season approaches, analysts said retail numbers would stay weak if gasoline prices continued to inflate and the dollar still struggled. The back-to-school season at the end of summer could lift sales for the teen and discount sectors.
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Mixed bag
Rebate checks fueled increased spending at discount and wholesale stores in May. Sales for the month rose 3%, according to a survey of 37 chains in U.S.
Year-over-year percentage change in May sales at stores open at least a year
*--* Company % change Nordstrom +10.9% Costco +9.0 Ross +7.0 Wal-Mart +3.9 Hot Topic - 0.2 Neiman Marcus - 0.2 Target - 0.7 Wet Seal - 2.0 Pacific Sunwear - 3.0 J.C. Penney - 4.4 Limited Brands - 6.0 Saks - 8.7 Gap - 14.0 *--*
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Sources: Thomson Financial, Times research and International Council of Shopping Centers
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