THE 

MONITOR

Keeping Our Finger On The Pulse Of The Retail Industry

U. S. Chain Store Sales Fell 5.1% in July

U.S. chain store sales for July 2009 were off 5% on a year-over-year basis according to ISCS’s index.  Analysts report that July chain store sales were in line with expectations for the industry and were consistent with the recent trends in May and June.

A variety of factors weighed in on July’s results.  Rising unemployment, cool weather and a lack of tax-free holidays like those in July 2008 kept shoppers at home or buying just what they needed, rather that stocking up heavily on back to school items.

As retailers looked to clear out merchandise, there were leaner inventories for shoppers to choose from.  In addition many states pushed their back-to-school sales tax holidays into August, as opposed to July of last year.  This calendar shift likely pared 0.5% points from July’s sales growth.

Other factors were a year ago comparison period was boosted by economic stimulus payments; there were fewer promotions; a later start to back-to-school shopping, and unfavorable weather.  Sales may also have been hurt by consumers buying new cars under the “Cash for Clunkers” program, siphoning money away from other spending, said Ken Perkins of Retail Metrics.

Aeropostale was one of the retailers who saw a favorable increase in sales of 13.0% in year-to-year comparison, along with The Buckle with an increase of 7.9%. 

Some declines included:

Abercrombie & Fitch Co. - sales fell 22.1%
The Children’s Place       - 3.3% drop
Limited Brands               - 7.5% drop
Stage Stores                  - 10.2% drop

All eyes are on August and September, with tax-free periods in some states moving into August and the later Labor Day holiday spelling delayed back-to-school shopping for many.  September 2008 was the start of the streak of negative same-stores sales, so comparisons will start to ease for retailers who have struggled to get shoppers into stores.

Back to School – Four out of Five Americans Say Economy Affecting Back to School,
College Plans

The NRF’s 2009 back-to-school survey says the rules of back-to-school shopping have officially changed.  The new approach is, buy only what you need and check for coupons and sales before hitting the stores.

Based on the Consumer Intentions and Actions Survey conducted by BIGresearch the average family with students in Kindergarten through grade 12 is expected to spend $548.72 on school merchandise, a decline of 7.7 percent from $594.24 in 2008.  Total spending on back to school for this grade span is expected to reach $17.42 billion.

Total 2009 back-to-school and back-to-college spending will total $47.50 billion. 

The survey indicated that the economy is having a major impact on back-to-school spending and 85% of shoppers have made some changes to their plans this year as a result.  Some changes impact spending as follows:

·         56.2 % of back-to-school shoppers are hunting for sales more often;
·         49.6 % plan to spend less overall,
·         41.7 % will purchase more store brand/generic products, and
·         40.0 % plan to increase their use of coupons.

“The economy has clearly changed the spending habits of American families, which will likely create a difficult back-to-school season for retailers,” said Tracy Mullin, President and CEO of NRF.  “As people focus primarily on price, strong promotions and deep discounts will ultimately win over back-to-school shoppers this year.” 

Spending in most categories is expected to decrease with the exception of electronics.  With the increasing affordability of laptops and desktop computers, electronics and computer equipment is expected to increase 11% with the average family spending $167.84 on those purchases, compared to $151.61 last year.  In addition, families will spend an average of $204.67 on clothing and accessories, $93.59 on shoes, and $82.62 on school supplies.

Discount stores will be the most popular spot for back-to-school shoppers (74.5%) and people’s plans to buy school items at drug stores is expected to rise substantially.  Close to 21.5% of families will shop at drug stores, an increase of 18% over last year.  In addition to discounters and drug stores, 54.4% of shoppers will head to department stores, 48.4% at a clothing store and 41.2% at office supply stores.  Online shopping will account for 22.2%, electronic stores will account for 20.8% and thrift store shopping will be around 18.2%.

College spending will increase slightly in spite of the fact that students are re-evaluating what the college needs truly are and deciding to live at home with their parents.  As the back-to-school shoppers are doing, families of college bound students will increase their dependence on drug stores.  Drug store shoppers will account for 23.4%, a 38% increase from last year’s 14.3%.  College shoppers will buy from discounters (53.4%), college bookstores (44.5%), department stores (43.1%), and office supply stores (32.5%) most frequently.

Families of freshmen will spend the most, averaging $820.77.  College students will spend an average of $118.56 on apparel, $57.85 on shoes, $34.52 on collegiate gear, $61.05 on school supplies and $80.06 on dorm or apartment furniture.  Spending on electronics or computer-related items is increasing as laptops become a requirement for many colleges and universities across the country.

Card Fees Pit Retailers Against Banks

As reported in a New York Times article, the most profitable item at Patricia Orzano’s 7-Eleven store on Long Island is coffee.  But as more customers use plastic to pay for even small purchases like these, she has watched a growing share of her revenue vanish in a stream of credit and debit card fees that retailers say raise the price of goods and sharply lift the cost of doing business.

Merchants across the nation, from powerhouses like Wal-Mart and Home Depot, to gas stations, mom-and-pop restaurants and 7-Eleven, have spent years unsuccessfully fighting the biggest of these costs, known as an interchange fee, which generates an estimated $40 billion to $50 billion in income annually for banks that issue credit cards.

But after Congress passed a law last month to protect consumers from excessive fees and interest on credit cards, merchants are mounting a fresh offensive.  This time, they believe the momentum in Washington has turned in their favor. Legislation is winding its way through Congress, a government audit has been ordered and petitions are surfacing in hundreds of convenience stores, including Ms. Orzano’s 7-Eleven, encouraging customers to voice their opposition to the fees. “Congress sort of already illustrated the willingness to take on the credit card companies and the big banks,” said Keith Jones, a lobbyist for 7-Eleven. “We just feel like the job is half done.”

And while large and small banks often clash on political agendas, they have formed a united front, joined by payment networks like Visa and MasterCard, to prepare for a furious battle on Capitol Hill. With profit from credit cards likely to diminish because of the new laws, they are determined not to absorb another major hit.

Every time a consumer uses plastic, about 2% to 3% of the charge goes to banks and payment networks, which price the fee differently in different countries. Of that, the interchange fee is paid to the cardholder’s bank, and at roughly 1.8% of each purchase in the United States, according to June report by J.P. Morgan, it is the largest and most controversial of these costs.

But retailers may have a tough time convincing Congress that consumers would benefit if the effective interchange rate, which has increased slightly in recent years, is dialed back.  In Australia, where regulators required banks to cut the interchange rate for Visa and MasterCard purchases to 0.5% from 0.95%, the banks offset their loss by reducing rewards programs and raising annual fees, according to a 2008 report by the Government Accountability Office.

A similar outcome could happen here, banks and card companies say. In response to 7-Eleven’s petition drive, MasterCard said the convenience store chain was really asking its customers “to claim that they want to pay more for their payment cards so 7-Eleven can increase its profits.”

Of $100 charged to a Visa card, the merchant’s bank receives about $2.25, according to a hypothetical example used by J.P. Morgan in a June report. The bank forwards about $1.80 — the interchange fee — to the cardholder’s bank. Both banks pay a fee to Visa, 10 cents apiece. The merchant’s bank then pays another nickel to a third-party processor and keeps the remaining 30 cents.

While the fee for each purchase is small, combined credit and debit card payments at merchants have almost tripled over the last decade, to more than 58 billion swipes last year from about 20.7 billion in 1999, according to data compiled by the Nilson Report, a journal on the payment industry.

Merchants say that makes their aggregate expense from the fees enormous — and there is no leverage to ratchet it down.  At Target, for example, interchange fees represent the second-largest store-level expense, behind payroll. The costs are similarly eye-popping at Home Depot, where officials say they top the price of health care insurance for employees. “The amount of money we’re spending on interchange would put 10 associates in each of our stores,” Dwaine Kimmet, vice president of financial services for Home Depot, said at a recent conference on credit card fees.

Some retailers simply refuse to accept certain credit cards. Costco, the nation’s largest membership warehouse chain, negotiated a lower interchange rate with American Express and does not take Visa and MasterCard in its stores.

Merchants say the cost may have been justified when credit card transactions were largely done with paper, making processing far more cumbersome. But with bigger volumes and new efficiencies from technology, they argue, interchange fees are simply a cash cow for card companies that wind up lifting the costs of all goods.

Still, while legislation on interchange fees would not have stood a chance a few years ago when the economy was buoyant and banks were not under the political spotlight, the winds on Capitol Hill have shifted as public anger at banks — and credit card companies — has grown.

“The target is still painted bright red on the forehead of every credit card issuer,” said Robert Hammer, a credit-card industry consultant. “It is a brutal, brutal year.”

Minimum Wage Increase – Will it Help or Hurt?

As reported in the New York Times, the final step of a three-part federal minimum wage increase took effect on Friday, July 24^th, and labor officials say it will stimulate the economy while business groups warn it could hurt some of the workers it was meant to help.

Labor Department Secretary Hilda Solis said the 70-cent-an-hour increase will “really improve and stimulate our economy,” adding more than $100 a month to low-wage workers in about 30 states.  That should help more workers pay utility bills and buy groceries in an economy that needs a boost, Solis said in a conference call.

The final 70-cent-an-hour increase raises the base wage to $7.25 from $6.55.  About 20 states already have minimum wages that match or exceed that.  Before the Fair Minimum Wage Act of 2007 was enacted, the federal minimum wage stood at $5.15 an hour.

The U.S. Chamber of Commerce warned it could backfire by putting further burdens on employers who are grappling with a tough economy.  “Businesses in general and small business in particular, are really struggling overall,” said Marc Freedman, the Chamber’s executive director of labor law policy.  Instead of helping all workers, it could hurt some of them, he said.  “If you’re paying more for an employee, you need that employee to do more, so the idea of hiring entry-level unskilled workers is going to be less attractive,” he said.  He added that employers’ search for extra revenue to pay the higher wages could lead them to cut back the hours an employee works or reduce benefits.

In answering reporters’ questions, Hilda Solis said Congress may be looking at another round of wage increases, but she said she has always supported the idea of states settling their own, higher minimum wages.  “The President is very aware that the minimum wage should be something that reflects the cost of living,” she said.

There Really Are Christmas Sales in July

Retailers bring the holiday season to the middle of summer

Shoppers! Attention Please! There are less than 141 days until Christmas!  And since July, it’s beginning to look a lot like Christmas in some retail stores.  “After U.S. retailers posted 10 straight months of sales declines, some chains are trying to bring holiday spirit — and revenue — to the summer with "Christmas in July" promotions”, according to a Reuters article published on MSNBC.com.

Sears Holdings Corp and Toys R Us are having wintry holiday-themed events ahead of their back-to-school promotions.  At Sears the company decked the halls of about one-third of its stores, as well as its Sears and Kmart Web sites, offering cold-weather gear and winter accessories while it sells portable swimming pools, and summer apparel.

A similar display is in the planning from Toys R Us but the emphasis will be on holiday-themed pricing for goods such as bicycles, video games, doll houses and portable DVD players.  While the chain isn’t selling winter holiday merchandise, it is bringing pre-winter holiday cheer, complete with Christmas cards and candy canes, to its stores.  "Everyone needs a little Christmas, right this very minute," the company said in a release.

MoMa Design stores, part of New York's Museum of Modern Art, are also getting in on the holiday season action early by offering holiday-themed greeting cards, a fold-up gingerbread house and polar bear Christmas tree ornaments as part of a "Last Chance Summer Sale." 

“The year-end holiday season is the most important for U.S. retailers, which can sometimes ring up as much as 40 percent of their annual revenue in the weeks between the U.S. Thanksgiving holiday in late November and Christmas on Dec. 25.”

Could the hopes of these promotions by such stores as Sears and Toys R Us be linked to wanting the same success seen at high-end department store operator Nordstrom, Inc. whose annual anniversary sale in late July features discounts on cold-weather jackets, boots and coats?

Nordstrom’s July event has become so popular that they claim its second quarter, which this year began on May 3rd, is now as important as its fourth, with the first day of the sale becoming the company's biggest day of the year.  While the Nordstrom promotion includes cold-weather clothing, there will be no references to reindeer or Santa Claus, according to Nordstrom spokeswoman Brooke White. "Our customers really love the fact that we do not celebrate the holidays until the day after Thanksgiving," she said, "and we have no plans to change that."

But Toys R Us and Sears will embrace those yuletide images. Even the Salvation Army bell-ringing workers will be flanking store entrances in Santa hats to collect money for the nation's poor, at these chains and other locations.  "It's something we've gotten behind, and the community has embraced," said Stephen Warren of a Salvation Army branch in New Hampshire. "People are not only in need during Christmas."

President of research firm Retail Metrics, Ken Perkins, questions whether this early winter holiday season will cause friction with U.S. consumers who have been hounded by falling home values, rising unemployment and other financial worries.  "Consumers have way too much on their minds to be worried or even thinking about five or six months from now," said Perkins.  When the question was posed to local consumers their responses were mixed.  For example, at a downtown Chicago Sears, Beverly Lewis, a librarian from South Dakota, said she had no problem buying winter items in July if the price was right.  "A sale is a sale," she said.  But 35-year-old Todd Smith of Chicago took a different view.  "It's very odd," he said. "It makes me think they're desperate."

Movers & Shakers

People you know, who are on the go…

This monthly installment to The Hart Monitor includes executive moves within the retail industry as reported in publications such as WWD, Hoover's, and various other sources.

J. C. Penney Corporation:

Pam Mortensen has changed her title at Wal-Mart Stores (where she was formerly VP and divisional merchandise manager) for SVP and general merchandise manager of fine jewelry at department store operator J. C. Penney.
 

Staples:
Former Wal-Mart Stores VP Amee Chande has joined office supply retailer Staples as the SVP of strategy, while  Mike Miles, Staples president and chief operating officer, will assume responsibilities for Staples International effective September 1. Miles takes over the responsibilities from Peter Ventress who is leaving the company.
 

SUPERVALU:

President and COO Mike Jackson and president of retail midwest Kevin Tripp will retire from grocery store operator SUPERVALU on August 14. With their retirements, CEO Craig Herkert adds the additional title of president, Pete Van Helden (president, retail west) will lead all regional operations as EVP, and Duncan MacNaughton (EVP merchandising and marketing) will also run a new health and wellness division.
 

Genuine Parts:

EVP Paul Donahue was moved up to president of U.S. automotive parts group at auto parts retailer Genuine Parts.
 

Walgreen:

Drugstore operator Walgreen changed CFO Wade Miquelon's executive title from SVP to EVP and named John Spina as VP retail integration and new format development.
 

The Brick Group Income Fund:

At furniture retailer The Brick Warehouse (and holding company The Brick Group Income Fund), former Forzani Group president and COO Bill Gregson has become the new president and CEO as Kim Yost stepped down from these positions.

Zale:

Jewelry retailer Zale has crowned former JWT executive Richard Lennox as EVP and chief marketing officer, effective August 17.

Best Buy:
At consumer electronics retailer Best Buy, Scott Wheway, former chief operating officer of Best Buy International, has been named CEO of Best Buy Europe where he will oversee all of Best Buy Europe’s operations.

Jones Apparel Group:
At apparel retailer Jones Apparel Group, Mehmet Tangoren, former Vice President, Divisional Merchandise Manager Modern/Contemporary/Bridge Sportswear of Macy's East has been appointed Senior Vice President of Product Development for the Jeanswear Division.

Coldwater Creek:
Jerome Jessup an experienced retail veteran will be joining the company as Executive Vice President, Creative Director. Mr. Jessup has spent the last four years running his own fashion collection and consulting practice.  Prior to that, he was the senior executive vice president of design and merchandising for Ann Taylor.

Attend Upcoming Loss Prevention Conferences

Canada’s LP industry’s leading conference is right around the corner:

Retail Council of Canada 2009 Loss Prevention Conference
 

September 15, 2009, International Centre – Conference Centre, Mississauga, Ontario, Canada

From the RCC Website:
 

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