THE 

MONITOR

Keeping Our Finger On The Pulse Of The Retail Industry

Volume VIII,    Issue 3

March  2010

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Americans Spend More in February
Total sales jumped 4% in February, according to sales tracker Thomson Reuters, which looks at monthly same-store sales for 30 chains such as Costco, Target, Gap and J.C. Penney. The firm had forecast a 2.9% gain for the month.

February marked the sixth month in a row that overall same-store sales increased and was the strongest gain since November 2007, when those sales rose 6%

Sales were strong across the board, with 76% of retailers beating analysts’ estimates. Specialty retailers, particularly those targeted at teen shoppers, had plenty to cheer about in February, with many reporting same-store sales increases that beat analysts’ expectations.
 
  • Abercrombie & Fitch reported a 5% increase in same-store sales in February. Analysts had expected the company's same-store sales to decline by 6.9%.
  • Aeropostale said its February same-store sales rose 7%, better than the 4% expected by Wall Street analysts. The New York-based apparel retailer said it was "very pleased with the strong customer reaction to its spring merchandise assortment."
  • Gap reported a 3% increase, better than the 1.8% increase Wall Street analysts expected
  • American Eagle Oufitters said its sales rose 6%. Analysts, on average, had expected same-store sales to rise 2%, according to Thomson Reuters.
  • The Buckle sales climbed 5.1%, beating analysts' expectations.
  • Limited Brands’ sales rose 10%, narrowly beating analysts' expectations.
  • The Wet Seal reported a 4.7% increase in sales.

The continued strength in sales at teen-focused retailers suggests that consumers are becoming more willing to spend on non-essential items, said Jharonne Martis, a retail industry analyst at Thomson Reuters. Thomson Reuters' teen index, which tracks seven retailers in the sector, rose for the second month in a row, with only one company missing estimates.  "The teen index is a good proxy of discretionary spending," said Martis. "Consumers are reaching for their pocket books now."

Looking ahead, analysts expect March sales to be even stronger, due in part to sales associated with the Easter holiday.

Industries Hit Hardest by Job Losses and Those Bouncing Back
According to the U.S. Bureau of Labor Statistics’ January 2010 Employment Situation Report released in February, the news is not great but it is better than what analysts had predicted. Based on the report, the U.S. lost another 20,000 jobs in January, and the unemployment rate was down by just a 0.3% to 9.7%. This reflects 14.8 million Americans still out of work. To put it in a somewhat clearer perspective, in December 2007, a total of 7.7 million Americans were unemployed. Since the Great Recession kicked off in 2007, the U.S. has seen more than 7 million jobs go down the drain as the unemployment rate has skyrocketed by 5%.

The number of workers unemployed for 27 weeks or longer has soared to a record 6.3 million, up 26% from two years ago. Some 661,000 Americans have simply dropped out of the labor market altogether, with many discouraged unemployed workers simply giving up on the fruitless job search, according to experts.

Although the entire nation is suffering from unemployment aches and pains while some industries have caught an employment cold, others have the full-blown flu. The following are three industries that have been hit the hardest by the unemployment crisis, plus a few on the upswing:

Construction: The construction industry has been hit with record-high job losses in recent months and has shed 75,000 jobs in January alone. Most cuts came from non-residential specialty trade contractor positions, which plummeted by 48,000 jobs. Since the start of the Great Recession in December 2007, the construction industry has lost a grand total of 1.9 million jobs and experts say construction job losses probably won't come to an end anytime soon. That's because the industry's unemployment problems have created somewhat of a domino effect; from building owners unable to get financing from banks, to construction companies not earning enough to pay their workers, which leads to countless job cuts. That means the construction industry likely won't see employment increases until the economy finally bounces back.

Transportation and Warehousing: While no sector has been hit as hard as the construction industry, the past few months have shown large job losses in transportation and warehousing workers. In January, these two industries lost 19,000 jobs after dropping 23,000 jobs in December 2009. This large number may be due to soaring courier and messenger layoffs as well as other factors.

Manufacturing: The American manufacturing industry has been floundering for the past 10 years as U.S. manufacturers moved more production overseas for low-cost labor. Since the recession began in December 2007, more than 2 million manufacturing jobs have disappeared. During the last six months of 2009, the industry saw an average loss of 41,000 jobs per month. Fortunately, it seems that manufacturing employment is finally leveling off after months of sharp job losses. Also in January, motor vehicles and parts actually gained 23,000 jobs, and the plastics and rubber products sector increased by 6,000 jobs. These gains helped offset job losses in other parts of the manufacturing industry.

Industries on the Upswing: Fortunately, the employment news isn't all so gruesome and grim. In January, the temporary help services industry saw a whopping 52,000-job increase. This is one industry that has seen significant employment improvements for quite a few months. Health care also saw a jump in jobs in January, as has Retail with 42,000 new jobs. On an added note, the federal government has also added 33,000 jobs, including 9,000 temporary Census 2010 positions.

Luxuries and Discounts Rebound

As reported in the New York Times, consumers were more willing in recent months to treat themselves to things they did not need, like baubles and little black dresses. But, only if those indulgences could be found at recession-friendly prices. That was confirmed when two of the nation’s best-known clothing and accessories companies, Saks and the TJX Companies, reported their quarterly earnings.
 
Saks, the upscale department store, posted a loss of $4.6 million – substantially less than the loss of $99.7 million reported a year earlier. Sales at stores open at least a year, a measure of retail health, declined 4.8% compared with the period a year ago. Were it not for several one-time costs that hurt the results, Saks would have had earnings of 6 cents a share.
 
The luxury retailer narrowed its losses by cutting costs, lowering its inventory and striving to appeal to frugal-minded customers. In 2010 it will offer more entry-level prices on designer brands, as well as more exclusive and private label merchandise. Today about 10 percent of the chain’s merchandise is exclusive; the plan is to increase that to about 20 percent.

“The consumer’s mind-set has changed,” Stephen I. Sadove, the chief executive of Saks, said in an interview, “how they’re defining value has changed.” For instance, dresses that can be worn to work and then out on the town are selling well at Saks because consumers are aiming to get more bang for their buck. Mr. Sadove described the luxury sector as much more stable and predictable than last year. “The consumer’s starting to be a bit more comfortable,” he said. Still, he stated, “we have yet to see a meaningful rebound in consumer demand.”

Discount chains have been performing far better than upscale stores throughout the economic downturn, and TJX, which owns chains including TJ Maxx and Marshalls, posted a profit of $395 million, or 94 cents a share, for the period ended Jan 30, compared with $251 million, or 58 cents a share, last year. Sales rose 10 percent, to $5.9 billion. Sales at stores open at least a year climbed 12 percent.
 
“In 2009, one of the worst economic periods that the U.S., Canada, and Europe have seen, TJX generated superior earnings growth,” Carol Meyrowitz, the chief executive of TJX, said in a news release. “Sales growth was driven by a large increase in transactions as we attracted new customers from all income levels with our compelling values.”

TJX has thrived in recent months as consumers combed through its racks for brand names at low prices. While the luxury sector has not been as lucky, there were signs of improvement. Saks said in its most recent reporting period its Internet business thrived, posting a 23 percent sales increase.
 
Another positive sign for retailers is that consumers bought more items at full price. Mr. Sadove said shoppers began to realize that inventories were so low that waiting for an item to go on sale might mean being left empty-handed. Saks plans to continue weaning shoppers off discounts with tactics like excluding some products from certain promotions.
Retailers are sensitive, though, to what their customers want. “It’s one thing to have higher prices,” said Ronald L. Frasch, president and chief merchandising officer of Saks, “but if you don’t sell them it doesn’t mean anything.”

Olympic Merchandise Hot in Vancouver
One of the Sports which have come into their own at the Olympic Games was shopping. Since the opening ceremonies the streets of Vancouver have been jam-packed with people not only looking to see the sights but purchase whatever Olympic souvenirs they can get their hands on.

Hudson’s Bay Company Olympic Superstore had lines forming from the inside of their store to the end of the block. With such a high demand, they decided to keep the store open 24 hours, starting Friday and ending Sunday Midnight. Hudson’s Bay Company (Hbc) is Canada's largest diversified general merchandise retailer with over 600 retail locations divided up between four banners: the Bay, Zellers, Home Outfitters and Fields.
 
The Vancouver Organizing Committee known as VANCO reported that they had already hit their merchandising sales goal of about $48 million (US), halfway through the games. By comparison, the Olympics at Torino brought in only $22.7 million in total sales.

Spending on Visa cards (the only ones accepted at Olympic venues and stores) topped $9.4 million in British Columbia in a single day last week, an increase of more than 91% over the same day last year.

The most popular item sold were the Ubiquitous Red Mittens, which cost $10 Canadian / $9.60 US – which are expecting to hit $3.3 million in total sales. The second most popular was the plush mascot, which costs $30 Canadian.

Polo Ralph Lauren and Nike retail were accessible by invitation only. They do not release figures about what their goals in sales are, however have already sold out of their hottest item, the Polo Ralph Lauren knit cap which athletes wore at the Opening Ceremony and cost $75.

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.

Great Atlantic & Pacific Tea Co:
Grocer A&P has chosen a replacement for interim CEO Christian Haub. Former Borders Group CEO Ron Marshall has become president and CEO. Haub will remain chairman. Also, CFO Brenda Galgano was given the additional title of treasurer (succeeding Bill Moss) and Krystyna Lack was promoted to VP treasury services.

Borders:
Bookstore operator Borders Group CEO Ron Marshall resigned. EVP and chief merchandising officer Mike Edwards adds on the title of interim CEO.

Williams-Sonoma:
Chairman and CEO Howard Lester will retire in May from home products retailer Williams-Sonoma; he will change to chairman emeritus until December 2012. President Laura Alber will move to CEO in May.

Wm Morrison Supermarkets:
Grocery store chain Wm Morrison Supermarkets named Loblaw COO Dalton Philips as CEO, effective in March. He succeeds Marc Bolland, who resigned to work for Marks and Spencer.

SUPERVALU:
Julie Dexter Berg will become EVP and chief marketing officer effective this month at supermarket company SUPERVALU.

Wal-Mart:
Mega-retailer Wal-Mart Stores changed Wal-Mart.com president and CEO Raul Vazquez to EVP and president, Wal-Mart West, and Steve Nave is now SVP and general manager, Walmart.com US business. Former Walmart International CFO Wan Ling Martello was named EVP and COO, Global.com.

Nash-Finch:
Wholesale grocery distributor Nash-Finch has elected EVP food distribution Christopher Brown as president and COO of Nash Finch Wholesale. Also, Dan Davidson was promoted to VP distribution.

Men's Wearhouse:
At discount men's suit retailer The Men's Wearhouse, former Mullen Communications executive Diane Ridgway-Cross steps in as SVP and chief marketing officer.

Gymboree:
VP finance Jeffrey Harris was promoted to CFO at children's clothing retailer Gymboree. He succeeds Blair Lambert, who will remain as COO until his retirement in November.

Best Buy:
Electronics retailer Best Buy hired former PepsiCo International executive Carol Surface; she has become EVP and chief human resources officer.

OfficeMax:
Office products retailer OfficeMax is searching for someone to replace chairman, president, and CEO Sam Duncan, who will retire February 28, 2011.

Kmart:
Sears-owned discount retailer Kmart outfitted former bebe stores executive Tara Poseley as SVP and president of apparel.

Snap-On:
With SVP finance and CFO Marty Ellen leaving toolmaker Snap-on on March 31, Aldo Pagliari will move into his position. Pagliari is currently president, Snap-on equipment.

Gap:
At clothing retailer Gap, Nancy Green is now the new EVP new business development and chief creative officer at Old Navy and Pam Wallack as head of Gap adult and body. Mark Breitbard succeeded Wallack, becoming EVP of GapKids and babyGap.
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Improved Customer Service Reduces Shoplifting
Having more store employees present in a store during peak traffic times not only increases the level of customer service, but also plays an important role in loss prevention. The mere presence of store associates makes the act of theft harder and riskier, and thus less frequent.

Increased customer service as a means of loss prevention has advantages over other loss prevention techniques (such as increasing sales) and is often less expensive. There is proof that increased staff serves multiple roles in improving a store’s profitability… selling, and as a deterrent to shoplifting.

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