Video: A gloomy April

Alison
By Allison Linn Senior writer
msnbc.com
updated 5/10/2007 2:32:07 PM ET 2007-05-10T18:32:07

Some of the nation’s largest retailers reported weak same-store sales in April, adding fuel to concerns that retail spending could face a longer-term slowdown if economic woes continue to weigh on consumers.

The weakness cut across a wide swath of retailers, with everyone from discounters like Target and Wal-Mart to department stores such as Macy’s and Kohl’s reporting disappointing results for the four-week period ended May 5.

The nation’s retailers had plenty of reasons for a poor showing in April, including unseasonably cold weather, a calendar change that put Easter sales in the previous reporting period and, in some cases, exceptionally strong sales in the March period. In fact, many had warned the previous month that they expected same-store sales, or sales at locations open at least a year, to be soft.

“It was always expected to be a weak period relative to March,” said Michael Niemira, chief economist for the International Council of Shopping Centers. The group said Wednesday that overall chain store sales fell 2.4 percent in the April period, the largest decline since record-keeping began in 1970.

But Niemira and others say an abundance of wintry weather and unusual holiday timing aren’t the only factors that may have kept people out of the stores last month — and may also keep them from buying everything from furniture to televisions in the months to come.

“We do know that there are longer-term stories impacting consumer spending,” Niemira said.

Those factors include the weak housing market and the fallout from high-risk mortgages during the boom years. Some industry watchers also are raising concerns about gas prices, which are threatening to hit $4 a gallon in the coming weeks. Americans also are facing longer-term financial issues such as increasing credit card and other types of debt, and extraordinarily low rates of personal savings.

“When you put all this together, it starts to look to me like a very scary situation for the consumer, structurally,” said Howard Davidowitz, chairman of the retail consulting and investment banking firm Davidowitz & Associates Inc. “In other words, to me, the customer is spent up.”

Davidowitz thinks the confluence of economic woes could prove to be especially burdensome for those retailers who are already struggling with slower growth and other woes, such as Wal-Mart Stores Inc.

On the other hand, Davidowitz is predicting companies that appeal to higher-income customers and have been resilient to other problems, such as Costco Wholesale Corp. and Target Corp., will fare better.

Wal-Mart said same-store sales for its U.S. Wal-Mart and Sam’s Club stores fell 3.5 percent for the April period, and it also provided a relatively soft outlook for its U.S. stores for the current month. The company cited such factors as weakness in clothing sales and the widespread pet food recall, and it also said its research showed that gas prices were weighing heavily on consumers’ minds.

Target, meanwhile, said sales in April fell 6.1 percent, but the company told investors it was still on track to meet its overall financial goals for the year.

Costco, which has a well-honed strategy of selling bulk discount items to well-heeled customers and businesses, said same-store sales at its U.S. and international locations rose 7 percent for the April period.

Department stores that appeal to middle-income shoppers weren’t immune from the April doldrums, but some more upscale clothing retailers fared better. Davidowitz noted that, despite the many pressures on middle- and low-income shoppers, factors such as the stock market and Bush administration tax cuts continue to benefit wealthy consumers.

Saks Inc. said same-store sales rose 11.7 percent in April, citing strength in areas such as designer sportswear and handbags.

On the other hand, Federated Department Stores Inc., parent to Macy’s, said same-store sales fell 2.2 percent, compared with a forecast that had called for sales to rise slightly during the period. The company also said same-store sales for May are expected to be flat or down 2 percent.

Kohl’s Corp. said same-store sales fell 10.5 percent for the April period, due to the expected shift in Easter sales and other factors. Still, the company said it remained comfortable with analysts’ expectations for its overall quarterly financial results.

More specialized retailers also were hard-hit. Clothing retailer Gap Inc. continued to struggle, reporting a 16 percent drop in comparable-store sales for April. Abercrombie & Fitch said same-store sales fell 15 percent for the period.

Despite the disappointing April period and other factors weighing on consumers, even Davidowitz doesn’t think it’s all gloom and doom. After all, the unemployment rate is relatively low and the stock market has been showing strong returns. Those factors should help mitigate things like gas prices and housing doldrums, he said.

Still, even the best-run retail business will be hurt if people start spurning certain products. Niemira expects weakness in the housing market to be a driving factor in crimping retailers who sell everything from furniture to electronics.

“Anything that ripples from housing expenditures, I think, is hurting,” he said.

If retail spending weakness does persist through the coming months, there will be a silver lining — for bargain-conscious consumers anyway.

“You will probably see more discounting,” Niemira said. “It’s good news for the consumers, bad news for profits and investors.”

Other industry watchers are more optimistic about how much consumers will be willing to spend in the coming months. Analyst Marshal Cohen with NPD Group said there were plenty of unusual factors that contributed to a weak April, but that doesn’t make him too worried about the overall picture.

For example, he doesn’t think rising gas prices will have much of a long-term effect on consumer spending unless they hit $4 a gallon. He also is less concerned about the housing doldrums than some other analysts, at this point.

But Cohen said he is watching closely to see whether the number of houses on the market grows substantially, pointing to bigger problems. If gas prices do hit the $4 mark, he says that also could start crimping spending beyond just low-income shoppers.

Cohen also is watching such disparate factors as the price of basic essentials including milk, the health of the job market and the amount of money single women are spending.

If any of those factors take a sharp turn for the worse, then he said it could point to longer-term weakness. But for now, he said he’s hesitant to read too much into April’s showing.

“April’s going to look tough,” he said. “It’s going to scare off the amateur investor, it’s going to scare off the naysayer. The real issue here is you can’t judge everything by one month alone.”

© 2013 msnbc.com Reprints

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.71%
$30K home equity loan FICO 5.26%
$75K home equity loan FICO 4.70%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.42%
13.42%
Cash Back Cards 17.94%
17.94%
Rewards Cards 17.14%
17.14%
Source: Bankrate.com