THE

MONITOR

Keeping Our Finger On The Pulse Of The Retail Industry

Volume VII, Issue 6

June 2009

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U.S. Chain Store Sales Were Down 4.6 % in May

U.S. chain store sales for May were down 4.6 % on a year-over-year same-store basis according ICSC’s index. This was a much bigger-than-expected drop in May same-store sales, as the absence of rebate checks and a continued reining in of consumer spending combined to crimp buying.

A tough year-over-year comparison was the main reason for the decrease. Last year the Federal government distributed $50 billion in tax rebate money and an ICSC consumer survey at the time showed that one-third of that amount was spent in the retail sector during the months of May and June. Some 63% of retailers missed projections for May and just 33% beat estimates. In April it was nearly the reverse, with 36% missing projections and 64% beating. Same-store sales dropped 2.7% in April, a month that included Easter.

"Despite the weakness in May, there are ‘green shoots’ within the retail sector," said Michael Niemira, ICSC’s chief economist and director of research. "Although overall retail demand was weak, there were individual retailers that have begun to see some notable improvements," he added.

Among wholesale clubs and mass merchandisers, Costco Inc. and Target Corp missed. Among department stores, Dillard's Inc. posted a drop of 12% when an 8% decline was projected. In the teen retail group perennial struggler Abercrombie & Fitch Inc. had the worst reported comps and among the biggest misses, with sales falling by 28%.

On a bright note, there was consistency among retailers that have been doing well. Aeropostale Inc. posted a 19% rise in comparable-store-sales when 10.7% growth was projected. Buckle has now posted positive comparable store sales for 33 months in a row, with a rise of 13.4% when 11.2% was projected.

Father’s Day Spending to Reach $9.4 Billion

According to the NRF’s 2009 Father’s Day Consumer Intentions and Actions Survey, conducted by BIGresearch, Americans are expected to spend an average of $90.89 on gifts for dad, down slightly from $94.54 last year. Total spending is expected to reach $9.4 billion.

Consumers will spend the most ($1.9 billion) on a special outing such as a dinner or even a sporting event. Clothing still ranks high among gift givers who are expected to spend $1.3 billion on new socks, slacks and ties.

Others will treat dad to a gift card ($1.2 billion), electronics ($1.0 billion), books or CDs ($548 million), home improvement items ($522 million) and sporting goods ($502 million).

Discount stores and department stores will be going head to head this Father’s Day as 33.9 percent of Americans plan on shopping at discounters and 33.7 percent will shop at department stores. Others will head to specialty stores like electronics and home improvement stores (26.8%), online (17.9%), at specialty clothing stores (6.1%) or through a catalog (2.8%).

The majority of those surveyed said they will only buy for their father/stepfather (51.1%). Husbands (28.6%), sons (7.6%), grandfathers (4.7%) and brothers (5.1%) will also see gifts from family members.

Consumer Confidence Up Sharply

Consumers appear to be much less pessimistic about the economy than they were a few months ago, according to The Conference Board Consumer Confidence Index for May, issued Tuesday, May 26^th.

The Index for May measured 54.9, up from 40.8 in April. That included increases in both the Present Situation Index, which was up to 28.9, from 25.5 a month ago, and the Expectations Index, which was up to 72.3, vs. 51.0 in April.

"After two months of significant improvements, the Consumer Confidence Index is now at its highest level in eight months [it was 61.4 in September 2008]," said Lynn Franco, director of The Conference Board Consumer Research Center.

"Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labor market and incomes will improve in the coming months. While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us."

Spending on Graduates Drops as Economy Impacts Gift-Giving

This should have been an outstanding year to aim marketing towards the millions of graduating celebrants. However it looks like the recession is cutting into gift-giving and changing the views of the people giving gifts. Cash will be king this year, with gift cards not as appealing as they once were.

According to the NRF’s 2009 Graduation Consumer Intentions and Actions survey conducted by BIGresearch, Americans giving graduation gifts will be providing cash envelopes this year accounting for 58.9% of gifts, which is up from 56.8% last year. Gift cards will account for 29.4%, down from 32.2% last year. Other gift categories are apparel at 9.9%, electronics at 9.0% and greeting cards at 37.0%. Graduation gifts are expected to come in around $3.9 billion.

The survey also found that an average of $88.01 will be spent by each American, down from $99.79 last year. The average is 1.96 kids per shopper and works out to $45.33 per recipient. Spending is highest in the Northeast ($103.71) and lowest in the south ($85.39). Men spend at little more than women, as do those in the 45 to 54 age bracket.

Students may use graduation gifts to stock up for college, their first apartment, for electronics, furniture or something else they want. “Young adults will have tremendous buying power in the next several months”, said NRF President and CEO Tracy Mullin.

Rhode Island Considers an ‘Amazon’ Law to Tax Online Purchases

Suppose you buy a book from a store in Rhode Island. Now suppose you buy the same book from an online retailer such as Amazon.com. Same buyer. Same book. The only variant is the method of purchase. But that makes all the difference from a tax standpoint. According to the Providence Journal, that’s the heart of a growing controversy nationwide.

When you buy from a local store, the store must charge you Rhode Island’s 7-percent sales tax. When you buy from an online retailer such as Amazon, they probably won’t charge you the sales tax. You’re still responsible for paying the tax (technically known as a use tax), but most people don’t pay it, mainly because they’re not aware of it. So what happens? Fewer sales at local stores, and fewer employees at those stores that survive. And, in time, fewer stores overall.

From a tax standpoint, it means less revenue to pay for vital state services. So what’s a state to do? The U.S. Supreme Court has ruled that a state cannot force an out-of-state retailer to collect a state’s sales tax unless the retailer has a substantial physical presence, or “nexus,” in that state. But New York last year enacted a new law, which has become known in tax circles as the “Amazon law.” It generally forces retailers such as Amazon to collect New York sales tax on certain purchases. What about the U.S. Supreme Court’s ruling? Here, in a nutshell, is how New York gets around it: Authors and others serve, in effect, as independent contractors, and often have formal associations with the online retailer. For steering business, they receive a commission or other consideration when a purchase is made.

And that’s enough to pass the U.S. Supreme Court’s “physical presence” test, New York contends. Amazon appealed, but New York Supreme Court ruled in the state’s favor earlier this year.

And now Rhode Island is joining the fray. State Rep. Steven M. Costantino, D-Providence, has introduced a bill that contains language similar to New York’s law. “I think it’s [an issue of] fairness to the business community,” including local bookstores and other such retailers that have operations in Rhode Island and thus are required to collect and hand over state sales tax, Costantino said. Mark Higgins, dean of the University of Rhode Island’s College of Business Administration adds that Sates are strapped for cash, and are interested in adopting a New York-style Amazon law. Overall, Higgins added, “There’s no doubt [that states are] trying to figure out a way to tax Internet sales.

Sales of goods online have ballooned as use of the Internet has spread. E-commerce sales totaled more than $2.3 trillion in 2006, according to the U.S. Census Bureau. As sales have risen, states and other governments that levy sales taxes have missed out on a lot of potential revenue — and will miss out on a lot more if they don’t act. A study by the U.S. Census Bureau stated that that uncollected sales taxes on purchases made online will cost these governments nearly $7 billion in sales tax revenue this year. Rhode Island will miss out on $17.7 million in uncollected sales tax on online purchases this year, and nearly $30 million by 2012, according to the study’s estimates.

Adopting New York’s Amazon law wouldn’t result in a windfall for Rhode Island. But it’s a step in the right direction.

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.

The Pantry:

CEO Pete Sodini will retire on September 30 from convenience store operator The Pantry, who will then be looking for a new CEO. Meanwhile, CFO and secretary Frank Paci now has the additional title of EVP business operations.

Chico's FAS:

Rochelle Udell is now SVP and creative director of the Chico's brand at women's apparel retailer Chico's FAS.

SUPERVALU:

Supermarket operator SUPERVALU has aquired Craig Herkert, former president and CEO of the Americas for Wal-Mart Stores.for their CEO position Jeffrey Noddle has retired as CEO, but remains on as chairman.

Banana Republic.

Julie Rosen, former Banana Republic executive, will return May 26 to The Gap's mid-scale apparel retailer division as SVP merchandising.

Bebe Stores:

Women's clothing retailer Bebe stores has added Tara Poseley as president BEBE SPORT, succeeding Erin Stern, who resigned in February.

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June 15–17, 2009, Los Angeles Convention Center, Los Angeles , CA

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