The Hart Monitor - July Edition

THE

MONITOR

Keeping Our Finger On The Pulse Of The Retail Industry

Volume VIII, Issue 7

July 2010

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June Discounts Help Retail Sales, May Hit July

Retailers posted mixed June sales on Thursday as a boost from hot weather-induced buying and a shift in the timing of Memorial Day sales was offset by continuing economic uncertainty and a drop in consumer confidence.

Total sales rose 3.1%, against expectations of a 3.5% increase, the third straight month where chain stores fell short of already lowered expectations, according to Retail Metrics. Among 28 retailers that have reported their results, 44% exceeded Wall Street expectations while the rest fell short, according to Thomson Reuters.

With uneven results from retailers ahead of the back-to-school selling period, the industry's second-largest period after the holiday sales, analysts said retailers may need to further increase promotions to boost demand.

Clothing stores accelerated discounting toward the end of June after not getting enough business, BMO Capital Markets analyst John Morris said, in an Associated Press report. He estimated that volume and level of discounts at the mall-based apparel chains he tracks was even with a year ago even as stores carry less inventory than a year ago.

Some bright spots:

Aeropostale Inc.- Same-store sales rose 8% , beating analysts' expectations.
Abercrombie & Fitch - Same-store sales rose 9%, easily ahead of analysts' expectations.
Limited Brands, which operates Victoria's Secret and Bath and Body Works- Posted a 6% increase, better than forecasts.

In other apparel retail June same-store sales results:

• Wet Seal - had a 3.6% drop
• Destination Maternity Corp.- same-store sales fell 2.2%.
• The Buckle - suffered a 7.3% drop, much worse than analysts expected.
• Hot Topic Inc. - posted a 2.1% decline in June, better than the 5.4% drop analysts had expected.
• American Eagle Outfitters’ - sales fell 1%, worse then analysts had expected.

"The pricing environment has become increasingly competitive," said Citigroup analyst Deborah Weinswig. "We expect moderating July sales as the consumer hangover continues to set in."

The Top 100 Retailers

The July 2010 edition of NRF Stores features their annual listing of the “Top 100 Retailers: The Nation’s Retail Power Players” sponsored by Hypercom, JDA, Red Prairie, and Tomax Retail.Net. The Top 100 Retailers is the authoritative ranking of the largest U.S.-based retail companies by annual revenues. The Top 100 companies are ranked by sales volume, with this year's figures compiled by research firm Kantar Retail

According to the article by David P. Schulz, 2010 has been a bumpy one for retailers as the nation’s economy continues with its spasmodic, high-unemployment recovery. From the start, off-pricers, discounters and grocers made out better than general merchandise and apparel specialty chains. Walmart, playing the everyday low price card, was especially blessed.

But 2009 was different story, with retailers trudging through a difficult year. Non-store retailers, in particular the e-commerce operators, managed to do all right, but there were few success stories for bricks-and-mortar retailers.

“It was very challenging,” says Mary Brett Whitfield, senior vice president of Kantar Retail, the research firm that provided the figures found in the Top 100 and Power Players charts. “The consumer was very anxious, cautious in her approach” and tended to shop on a “need-to-buy rather than a want-to-buy basis.” Kantar’s economists believe we are “clearly very early” in what they predict will be “a slow recovery,” Whitfield says.

The recession, 2 years plus, was the most severe economic crisis that most “core retail shoppers have gone through in their lifetimes,” Whitfield says. The result of this recession is it has “created value consumers” whose frugal habits are likely to last for some time, much the same way the Great Depression affected an entire generation of shoppers.

With such a type of environment in mind, STORES presents the 2010 iteration of its annual Top 100 Retailers. This version eliminates, to its best ability, sales outside the 50 states. Even without the sales from international operations, Walmart easily keeps its No. 1 position. A more significant change is the one that eliminates petroleum sales from total retail sale. This knocked nearly all convenience store operators, with the exception of Alimentation Couche-Tard and 7-Eleven, off the chart.

Stores Magazine goes on to rank the Power Players (leaders by sector) along with their ranking based upon 2009 revenues are:

Apparel: TJX (23)

Department Store: Macy’s (15)

Drug Stores: Walgreen (4)

Electronics & Entertainment: Best Buy (10)

Home Improvement: Home Depot (5)

Large-Format Value Retailer: Wal-Mart (1)

Office Supply: Staples (22)

Restaurants: McDonald’s (17)

Small-Format Value Retailer: Dollar General (28)

Supermarket: Kroger (2)

We have listed the Top 5 from the list. To view the complete list, click on the following Link -
2010 Top 100 Retailers | STORES.org,

	TOP 100 RETAILERS*		2009	2009	Number
Rank	Company	Headquarters	Revenues (000)	Earnings (000)	of Stores
1	Wal-Mart	Bentonville, Ark.	$304,939,000	$21,034,000	4,304
2	Kroger	Cincinnati, OH	$76,733,000	$1,091,000	3,619
3	Target	Minneapolis, MN	$63,435,000	$4,376,000	1,740
4	Walgreen	Deerfield, IL	$63,335,000	$3,247,000	7,397
5	The Home Depot	Atlanta, GA	$59,176,000	$4,803,000	1,966

Millions Celebrated July 4th Festivities

A survey released by the National Retail Federation and conducted by BIGresearch found that nearly 144 million Americans -- or 61.9% of adults over age 18 -- celebrated the Fourth of July holiday.

The 2010 Independence Day Consumer Intentions and Actions survey said that the celebrations were traditional, which means attending or hosting a cookout/barbeque or picnic.

The survey also found 98 million, or 42.4% of adults over 18, planned to watch fireworks or attend a community celebration, compared with last year's 42.7%. More than 28 million (12.2%) planned to attend a parade and 27 million (11.5%) planned to travel or take a vacation.

Independence Day is big business; more than 123 million people (60.8%) already own an American flag and nearly 86 million (41.9%) own patriotic apparel such as a t-shirt or hat. More than one-quarter (27.3%) of consumers own patriotic decorations. The survey revealed that 16.2% of planned to buy new patriotic merchandise, up from the 14.1% who were expected to shell out extra money for apparel, decorations or accessories last year.

Bill Would Ban Free Bags at California's Grocery Stores

In an article published by The Sacramento Bee, California's supermarket shopping experience is marked by a simple question: Paper or plastic? Soon the answer may be neither.

California would become the first state to ban grocery, liquor and drug stores from providing free paper or plastic bags under legislation pushed by Democrats and supported by Republican Gov. Arnold Schwarzenegger. The goal is to fight litter and lighten the load on landfills by getting shoppers to use reusable fabric bags. They also have the option to use brown paper bags at a cost of 5 cents or more.

"I think the proliferation of plastic bags is unnecessary, and it's a pollutant, an urban tumbleweed," Democratic Assemblywoman Julia Brownley said of the lightweight bags that can litter yards and clog waterways. Californians use about 19 billion plastic bags a year, about 552 bags apiece, according to a legislative committee analysis of Brownley's proposal. Tim Shestek of the American Chemistry Council said the plastic bag industry would rather pay to bolster recycling programs than ban plastic bags. The crackdown on disposable bags would cost an estimated $1.5 million for the first year and $1 million annually to launch, administer and enforce, payable from fees on makers of reusable bags. “With California's economy struggling, it makes no sense to jeopardize about 500 plastic-bag manufacturing jobs and to promote paper bags that produce more greenhouse gas during their lifecycle than plastic bags do. We frankly think this is a dangerous precedent for the state to be setting," he said.

AB 1998 was approved by the state Assembly and Governor Schwarzenegger praised the bill calling it "a great victory for our environment." The California Grocers Association supports AB 1998 because it would set a statewide standard - pre-empting local ordinances - and would apply equally to grocers of all sizes, spokesman Dave Heylen said. Shoppers can buy reusable fabric bags now for about a dollar, perhaps more, depending on size and type of fabric used.

“Tens of thousands of plastic bags were among 1.4 million pounds of debris retrieved during an annual cleanup of California beaches and waterways last year,” said Eben Schwartz, outreach manager for the California Coastal Commission. Sixty percent to 80 percent of all marine debris is plastic, which can harm hundreds of wildlife species if they eat or get tangled in it, according to the state's Ocean Protection Council. "When those bags are floating around in the marine environment, they tend to mimic food," said Mark Murray of Californians Against Waste. "So marine life, whether it's birds or sea turtles, will consume the bags thinking they're prey."

Brownley said existing recycling programs have not fared well, attracting only a tiny percentage of plastic bags, so expanding them is impractical. Shoppers could easily avoid the proposed nickel-a-bag charge simply by keeping a reusable bag, she said. Opponents counter with a study by university researchers, funded by the American Chemistry Council, which suggests that reusable bags pose health risks. Ninety-seven percent of reusable bag users fail to wash them, and 51 percent of bags carried food-borne bacteria, the study found.

U.S. Retailers Pushing To Expand Overseas

According to an article in the L.A. Times by Sandra Jones, due to Americans cutting back on spending, retailers that had resisted opening foreign branches are now setting up shop outside the U.S. Retailers are looking for growth overseas as Americans' love affair with shopping slows down.

Some examples are Bloomingdale's and Crate & Barrel, each opening their first international store in Dubai this year while Abercrombie & Fitch opens its first store in London. Sears has started shipping tools and clothing to over 80 countries and Macy's is checking out China. Target, the discount chain that resisted Wall Street pressure to expand international, is now interested in Canada, Mexico and Latin America.

"In the 1990s and early 2000s, the U.S. was growing at a healthy clip compared to the rest of the world," said Frank Badillo, senior economist at Kantar Retail, a retail research group. "There are now growing doubts as to how fast the U.S. can grow going forward, and that's given lots of retailers reason to look elsewhere."

Most of the nation's retail chains have stayed close to home, basing their expansions on the substantial size of the American landscape and the U.S. consumer's appetite. Now, in the wake of the recession, that long-standing formula has lost its appeal. According to a survey by the Pew Research Center's Social and Demographic Trends project, “Two out of three Americans say they have cut back on spending since the recession began in December 2007.”

Still, setting up shop overseas is no sure thing. Factor such as understanding local tastes, adjusting to local culture and researching desirable real estate in local shopping malls and neighborhoods are challenges that have baffled some of the most sophisticated retailers. “Retailers have known the risks of expanding overseas, but as long as Americans were shopping with a vengeance, it was easier to build more stores at home. Now the tables have turned, and the risk of losing ground by avoiding foreign countries is too real to ignore”, Doolittle said.

“Costco, for example, has quietly become a bigger international company than most investors recognize”, said Credit Suisse analyst Michael Exstein in a June 28 report. About 20% of sales and 28% of operating profit came from international activity in 2009 and "is set to grow at an accelerating rate," Exstein said.

Likewise, Urban Outfitters is moving aggressively into Europe and Asia. The chain of trendy clothing stores, which include Anthropologie and Free People, is making a substantial investment overseas by paying third-party providers for services including logistics and systems, said Chief Executive Glen Senk in an earnings conference call this year.

The European apparel market is about 10% larger than the U.S. apparel market, according to Urban Outfitters' calculations, with more than two-thirds of that volume in five countries: Britain, Spain, France, Italy and Germany. "Any public retailer's board and management has to think about what they're doing internationally," said Madison Riley, managing director for North America at Kurt Salmon Associates, an Atlanta consulting firm. "You have to be making plans. If you don't start now, you'll be in real trouble in the next five to 10 years."

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.

GameStop:
Videogame retailer GameStop executive promotions: CEO Dan DeMatteo to executive chairman, COO Paul Raines to CEO, EVP merchandising and marketing Tony Bartel to president, and SVP and acting CFO Robert Lloyd to EVP and CFO

Staples:
Office supplies retailer Staples promoted Steve Bussberg to the title of SVP business delivery, succeeding Pete Howard, who was named SVP Southern Europe. Elaine Bruzios succeeded Bussberg as SVP finance, North American delivery.

Borders:
Bookstore operator Borders Group promoted chairman Bennett LeBow to be chairman and CEO and named interim CEO Mike Edwards as president.

Follett:
Chuck Follett, previously president of Follett technology solutions and international group, was named acting president and acting CEO, due to the departure of former President and CEO Christopher Traut.

Tesco:
Chief executive Terry Leahy will retire in March 2011 from grocery retailer Tesco. International and IT director Phil Clarke will become chief executive.

A.C. Moore:
Specialty retailer of arts, crafts and floral merchandise A.C.Moore has appointed Joseph A. Jeffries as Chief Executive Officer. Mr. Jeffries has served as the Company’s Acting Chief Executive Officer since March 31, 2010 and as Executive Vice President and Chief Operating Officer since August 2008.

Gap:
Leading global specialty retailer offering clothing, accessories and personal care products for men, women, children and babies under the Gap, Banana Republic, Old Navy, Piperlime and Athleta brand names, has announced that Katherine Tsang, Chairperson for Greater China at Standard Chartered PLC, a leading international bank, has been appointed to the company’s board of directors, effective August 16, 2010. Ms. Tsang is based in Hong Kong. With Ms. Tsang’s appointment, the company’s board will expand from 10 to 11 members.

Walt Disney:
Media conglomerate The Walt Disney Company named Rita Ferro EVP, Disney media sales and marketing; she succeeds Tricia Wilber, who moved to chief marketing officer, Europe, Middle East, and Africa.

RadioShack:
Consumer electronics retailer RadioShack called in former Zale executive Mary Ann Doran as SVP human resources.

GAME Group:
The GAME Group has a new executive as CEO, former Vodafone Group executive Ian Shepherd has succeeded interim CEO Chris Bell, who will remain a director at the video game and related products retailer.

Every issue of The Hart Monitor will contain a 'TIPS' section of helpful information regarding Inventory or Loss Prevention for retailers, including some of the industry's "Best Practices." If you have any Inventory or LP tips that you'd like to share, please CLICK HERE

Last month, Hart Systems attended the NRF Loss Prevention Conference & EXPO in Atlanta, GA.

From the NRF Website:

The NRF Loss Prevention Conference & Expo is the Nation's leading retail-specific loss prevention conference. NRF's event focuses on key issues: organized retail crime, on-line fraud, eFencing, interviewing, investigating, pandemic preparedness and more!

We spent some quality time with a number of our clients, and made many new acquaintances and friends as we demonstrated our rental system for self-scanned inventories - the most accurate physical inventory system available today

Aside from discussing loss prevention through inventory control and raffling off an Apple IPad, we also attended a number of presentations. The retail attendance for the conference was up 23% from last year!

The LP Awards Presentation was one of the main highlights. Congratulations to the 2010 NRF Law Enforcement Retail Partnership Award Winner – Chris Rollan, Detective, Helena Police Department, for bringing down a criminal enterprise that was terrorizing his community.

Congratulations to the 2010 Loss Prevention Case of the Year Winners – James Carson and Michael Chapman of Tourneau LLC (Responsible for putting an end to a massive credit card scheme involving two of their own managers who fraudulently charged $696,000 worth of credit card purchases.)

Congratulations as well to the inductee into the NRF Ring of Excellence (“for loss prevention professionals whose achievements and outstanding leadership have significantly shaped the industry”): James “Jim” Lee, President of Loss Prevention Magazine.

The Loss Prevention Volunteers in Action presentation was especially touching, recognizing loss prevention professionals and organizations “making significant and measurable contributions to charitable organizations”.

To find out more about upcoming industry events, or to learn more about Hart Systems scanning solutions, Click here or call us at (800) 252-2818.

To learn more about how we can help you achieve your physical inventory goals, please call us at 800-252-2818, click here -Tell Me More- to send an e-mail, or visit our website at http://www.hartsystems.com.

To view a previous Hart Monitor, click April, May, June

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