THE 

MONITOR

Keeping Our Finger On The Pulse Of The Retail Industry

Volume VIII,    Issue 6

June 2010

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Retailers Report Mixed Sales Results in May

Retailers reported a 2.5% gain in revenue at stores opened at least a year, just shy of the 2.6 % that Wall Street predicted. May brought mixed sales results for retailers, with early reports on Thursday suggesting an erratic recovery in consumer spending during a seasonally weaker period of shopping. Based on reports of 11 retailers out of 28 tracked by Thomson Reuters, 60% came in ahead of expectations, while 40% fell short.

Poor weather in early May and a still-cautious consumer translated into a mixed bag for retailers in May, underscoring the fragile state of the economic recovery. A Memorial Day holiday that fell on the last weekend of the month probably dragged sales down, with more shopping pushed into June, analysts said. Also, cooler weather everywhere but the Northeast, as well as heavier rain in the Northwest, hurt sales of summer apparel.

Among apparel retailers some had a good month:

       - Limited Brands said May same-store sales rose 5%, easily topping the 2.1% gain analysts had forecast.
       - At Gap, same-store sales rose 1%, better than the 0.6% gain forecast by Wall Street analysts and last year's 6% decline.
       - Aeropostale’s same-store sales were up 1% in May.

In other same-store sales results for May:

       - American Eagle Outfitters’ sales fell 3%. Wall Street analysts expected a decrease of 2.5%, according to a survey by Thomson Reuters.
       - Abercrombie & Fitch said its sales fell 3%, greater than the forecast for a dip of 2.3%.
       - Cato said its sales increased 3%.
       - Wet Seal’s sales fell 5.3% in May, a slightly smaller drop than analysts expected.
       - The Buckle reported that its same-store sales fell 5.4% in May, while analysts expected a slight rise.

Clothes, Gadgets and Gift Cards Top Gifts This Father’s Day
As the economy continues its slow rebound, Americans will spend slightly more on the most important men in their lives this Father’s Day. According to NRF’s 2010 Father’s Day Consumer Intentions and Actions Survey, conducted by BIGresearch, the average person will spend $94.32 on dear old dad this year, up from $90.89 last year. Total Father’s Day spending is expected to reach $9.8 billion.

Shiny new toys for dad will be one of the biggest hits this year, along with special outings, gift certificates and clothing. The survey found 39.9 percent of those celebrating dad this year will treat him to a special outing such as dinner or brunch, spending $1.9 billion. With 36.7 percent planning on spending a total of $1.3 billion on clothes, dad can expect a few more work shirts and ties to add to his collection as well. Others will shell out $1.2 billion on electronics, $749 million on greeting cards, $578 million on tools or appliances, $550 million on home improvement or gardening tools and $400 million on automotive accessories. Three out of 10 (31.2 percent) will give dad a gift card, spending an estimated $1.2 billion on those purchases.

“A slight uptick in Father’s Day spending is another sign people are starting to open up their wallets again,” said NRF President and CEO Matt Shay. “Whether it’s a large family get together or surprising dad with the new gadget he’s had his eye on, there are many ways people will choose to celebrate this year.”

Where will people shop?

Discount Stores                      34.4%
Department Stores                  34.1%
Gift Stores                              24.6%
Online                                    20.5%
Specialty Clothing Stores          7.6%

Most people will buy for their father or stepfather this holiday (49.3 percent) but others will treat their husband (27.1 percent), son (7.4 percent), grandfather (4.4 percent), brother (5.1 percent) and friend (4.9 percent) to something nice.

The Retailer’s Dilemma
As reported by an article in The Economist, the mood of executives at retail firms normally moves in step with that of their customers. But in America the news on May 25th that consumer confidence had reached its highest level in two years left them oddly subdued. Consumer spending per person, which fell for two years in a row for the first time since the Depression last year and the year before, has been rising again in recent months. But as retail executives place orders for the crucial end-of-year rush, they are anxiously debating how strong and lasting the consumer’s revival will be.

In the first quarter both fancier retailers such as Gap, Macy’s and Saks and retailers like Target, Wal-Mart and Home Depot all announced improved results. The rebound has been strongest in luxury stores: same-store sales at Neiman Marcus, for example, were 11% higher this April than last. But there was also reason for cheer at Home Depot, which relies on humbler consumers and the still-low housing market: revenues were up by 4.3% on the first quarter of 2009. Sales of home-improvement gear such as paint and gardening tools were especially strong.

Although profits were up at Wal-Mart, sales at its American stores fell by 1.4% compared with a year earlier. “More than ever, our customers are living pay check to pay check,” says Tom Schoewe, its chief financial officer. The International Council of Shopping Centres, a trade group, recently trimmed its sales projections for May.

A new survey by Deloitte, a consultancy, found that nearly two-thirds of them say their financial situation is as good as or better than it was a year ago, and that accordingly they plan to spend the same as last year or more. “Retailers should be encouraged by consumers’ tone as they plan for the critical fall and winter selling seasons,” says Stacy Janiak, who heads Deloitte’s retail practice in America.

Yet the recent improvement is from a very low base, especially at the grandest stores. Neiman Marcus’s strong April marked a rebound from a 22.5% decline in the year to April 2009; the 3.2% increase in revenues reported by Saks in the first quarter followed a 32% decline in the same period a year earlier, points out Steven Dennis, an analyst at Gerson Lehrman, a research firm. “The assumption that when the recession was over consumers would return to where they were has already been disproved,” says Paul Leinwand, a consultant at Booz & Company. Retailers are investing heavily to track consumers’ behavior in an attempt to work out what they might want to buy and how much they are willing to pay.

In general, retailers have learned to focus far more on lowering prices, and to stock a larger proportion of products at the low end of the price range. Saks has been especially astute at this, by increasing significantly the share of goods on its shelves that carry its own label. This has been a trend across the retail industry in the past two years, and no one expects it to be reversed now that consumer sentiment is starting to improve. Nor does anyone expect any reversal of another trend: consumers have been buying through a growing number of channels, from department stores to discount warehouses to the Internet, often going online first to hunt for the best prices. All of the leading retailers have tried to spruce up their online act during the downturn, including the use of social networking sites.

Retailers have also tried to shorten the ordering cycle, so that manufacturers end up carrying more of the risk of managing stock. Many are trying to replace the standard four annual “seasonal” orders with as many as 16 orders a year, says Mr Leinwand. Five years ago only Zara, a Spanish clothes retailer, followed such a strategy, but firms such as J.C. Penney, Saks and Macy’s have since adopted it too.

In some respects, it was easier for retailers to plan during the recession, provided they had accepted the gruesome reality, since plunging sales were all but assured. Now, there is great uncertainty about what consumers will do. If the recent up-tick in sales proves short-lived, retailers who extrapolate from the latest numbers will spend a miserable holiday season trying to offload unwanted stock at crippling discounts. Conversely, excessive pessimism could lead to empty shelves, resulting in disappointed customers and retail executives.

The Newest LP Threat You’ve Never Heard Of
As reported in an article by Joe Larocca, Senior Asset Protection Advisor - We have become accustomed to hearing about sophisticated hackers attempting to steal credit card, customer and employee information from POS and IT systems. Recently, CBS News ran a piece on copier security.

The CBS investigation found that nearly every digital copier built since 2002 contains a hard drive, much like the one on your personal computer. These drives store images of every document copied, scanned, or emailed from the machine.

Most businesses lease copiers and return or resell them after a few years – the practice at every company I’ve ever worked for. CBS went to a warehouse/liquidator and with forensic software downloaded from the Internet and they were able to obtain documents from each machine. Documents included records from the local police department and an insurance company.

One of the copiers contained payroll records, including social security numbers. According to a follow-up story, because of medical privacy laws, the insurance company was required to then file a breach notification to state and federal regulators and notify all of its clients and anyone who might have ever had information on the carrier’s copy machines, including current and former employees.

Mr. Larocca held off on sending this information out, thinking it might just be old news. But in a meeting full of law enforcement and bank investigators, only a handful had even heard of this story. Needless to say it became a topic of discussion. While there was some joy in having a new avenue for evidence collection, most people were concerned. Very concerned. How many times have we copied documents for meetings or watched the local pharmacy, cellular store and even the hospital copy our IDs and other personal records?

Apparently there is an option available on most copiers to encrypt or erase the data. Most IT professionals can find how to wipe the drive. It is important to make sure that your IT, operations and administrative associates are aware of this issue and handle accordingly.

Changes in Bank Debit Card Fees May Have Limited Impact
According to a recent article in USA Today, Congress is pondering over changes to the fees and restrictions that banks and credit card companies can place on merchants that accept credit and debit cards. These changes may not have a positive effect on the consumer.

Provisions being negotiated in the House and the Senate as part of the financial reform package would require the Federal Reserve Board to determine what would be “reasonable and proportional” fees for debit card transactions, which are about 1% of the transaction. The bill will also allow retailers to offer discounts for cash purchases. They will also remove prohibitions on minimum purchases required for credit or debit card purchases.

The National Retail Federation’s general counsel, Malory Duncan states that “stores that compete to have the lowest price are going to drop prices.” If they grow market share by service, retailers might offer free shipping or gift wrapping.” Stores will either “increase profits or increase customer service.” The most visible impact on consumers is likely to be in service or technology, not prices.

Such provisions have limited the types of retailers offering cash discounts to mom and pop stores and gas stations. If the credit/debit card provisions prevail, retailers could simply cut the price at the checkout of a cash purchaser’s total bill.

In another article in the Washington Post, Vermont became the first state to pass legislation limiting the swipe fee on credit and debit card purchases, a week after the Senate approved a similar provision as part of the mammoth financial overhaul bill.

Trish Wexler a spokeswomen for the Electronic Payments Coalition, which represents card issuers and processors, said many state benefits such as unemployment checks are delivered on prepaid cards. If retailers set minimums for using these cards, that could force some consumers to spend more money to meet the bar. “I suppose that you’re going to see a lot of unhappy Vermont citizens who can’t use their cards the way that they want to,” she said.

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.
Best Buy:
Electronics retailer Best Buy presented Bill Hoffman the title of SVP consumer insights.

Staples:
Office supply retailer Staples added Lisa Scopa to the title of VP and treasurer. She succeeds Nick Hotchkin, who is now named SVP finance, US retail business.

Neiman Marcus:
Burt Tansky, president and CEO of the upscale department store operator Neiman Marcus, will retire in October, but remain chairman. Current EVP and president and CEO of Neiman Marcus stores Karen Katz will become president and CEO. Also, EVP and CFO James Skinner will add COO to his title, and Jim Gold will exchange his president and CEO of Bergdorf Goodman title for president of specialty retail.

Sears:
Scott Freidheim, EVP operating and support businesses, has been named interim chief marketing officer at Sears Holding while the retailer looks for a replacement for Richard Gerstein, who resigned.

Walgreen:
Cheryl Pegus, of drugstore company Walgreen, was named chief medical officer.

Restoration Hardware:
Guess? President and COO Carlos Alberini has moved to home products retailer Restoration Hardware, where he was named co-CEO with chairman Gary Friedman.

American Eagle Outfitters:
At casual apparel retailer American Eagle Outfitters, Tana Ward now holds the title of chief merchandising officer. She succeeded Henry Stafford, who left to work for Under Armour.

CVS Caremark:
Drugstore operator CVS Caremark has named EVP and president of CVS/pharmacy retail Larry Merlo to president and COO and will make him CEO in May 2011 when Tom Ryan retires.

Whole Foods Market:
Natural foods grocery chain Whole Foods Market split its CEO role. Co-president and COO Walter Robb was named co-CEO (with John Mackey) and co-president and COO A.C. Gallo became president and COO.

ASDA Group:
Wal-Mart Stores-owned supermarket chain ASDA Group named COO Andy Clarke as president and CEO. Chief merchandising officer Darren Blackhurst resigned from the company.
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

    

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NRF Loss Prevention Conference & EXPO
June 14–16, 2010, Georgia World Congress Center, Atlanta, GA


From the NRF Website:
 

The NRF Loss Prevention Conference & Expo will be instrumental in preparing your loss prevention team for what’s to come. Whether your business operation is large or small, our robust program is full of actionable takeaways that you can take back to the office.
Join industry leaders in loss prevention and gather new solutions and services to reduce shrink, prevent crime, and limit liabilities.

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