The recession is continuing to punish the nation’s retailers, with many finding it difficult to get nervous customers to buy anything but necessities amid persistent worries about job losses and other economic woes.
“On balance, you could describe the retailers as struggling,” said Mike Montgomery, an economist with IHS Global Insight. “Some of them are doing OK, and others are getting kicked in the teeth.”
A recent spate of earnings reports has showed that some retailers, such as Macy’s, are working aggressively to revamp their operations in the hopes of seeing a strong benefit once economic conditions improve.
Those that are faring somewhat better during the downturn, such as Wal-Mart, are doing so in part because they have been able to attract customers who previously may have shopped at more upscale stores but are now turning to the discounter for everything from bread to blouses.
“The name of the game in retailing is stealing market share from your competitors in hard times,” Montgomery said.
Still, even the relative bright spots are finding challenges in this difficult economy. On Thursday, Wal-Mart said its earnings were essentially flat for the fiscal first quarter, hampered by a strong dollar that impacted its international operations.
Wal-Mart earned $3.02 billion, or 77 cents per share, for the fiscal first quarter ended April 30, virtually the same as the $3.02 billion, or 76 cents per share, in the same period a year earlier. Net sales fell 0.6 percent to $93.47 billion, but the company said they would have risen 4.5 percent without the impact of current exchange rates.
The department store chain Kohl’s, which also reported its quarterly earnings Thursday, beat Wall Street’s expectations and bragged that it had achieved its goal of gaining market share.
Still, success was relative: Kohl’s quarterly earnings fell 11 percent to $137 million, or 45 cents per share, compared with $153 million, or 49 cents per share, in the same period a year earlier. Sales grew 0.4 percent, to $3.6 billion.
The fate of retailers is important because consumer spending accounts for about 70 percent of the U.S. economy, and therefore is seen as key to any sort of economic recovery. But many believe retailing won’t see a substantial improvement until people feel more comfortable about the multiple economic woes many are facing, including worries about job losses, debt and falling retirement income.
“I think we’re going to see this deep retail freeze for a long time,” said C. Britt Beemer, founder of America’s Research Group.
Not getting too much worse?
Nevertheless, less-than-dismal results from some retailers is giving some experts hope that things are at least not getting too much worse.
“Retail has gone from collapsing to going sideways. That’s a big improvement,” said Edward Weller, retail analyst with ThinkEquity.
Indeed, some retailers are showing signs that they are at least finding a better way to deal with the difficult economy.
Based on its first-quarter results, Kohl’s raised its earnings guidance for the full fiscal year.
And late Wednesday, the upscale food grocer Whole Foods reported a 32 percent drop in its fiscal second-quarter earnings but still managed to beat Wall Street’s expectations. The Austin, Texas, company said sales for the quarter were flat, and the company said it was pleased with its performance.
Other companies have told analysts that things were going better than they had originally thought during first quarter.
Target, which reports quarterly earnings next week, said earlier this month that it expects results to be better than it had previously expected. J.C. Penney, which reports earnings on Friday, also has twice raised its outlook for the quarter.
Marshal Cohen, chief industry analyst for NPD Group, said he is seeing signs that the retail sector is stabilizing. He said more retailers also appear to be figuring out how to adapt to the recession, either by reducing the number of stores they have or revamping their operations for more frugal times.
"Sometimes it’s mor e important to get the new direction than it is to all of a sudden start making bigger sales in a down market," Cohen said.
With the economy still uncertain, Cohen is expecting to see pockets of improvement in the coming year, along with some difficulties. But he said some consumers will have to move beyond just buying necessities, especially after pinching pennies for so long.
"Now they’re starting to show the next phase: replacement and replenishment," he said.
Robust recovery a ways off?
Many believe it will be a while before retailers are able to really breathe easy.
On Wednesday, Macy’s reported a fiscal first quarter loss of $88 million, or 21 cents per share, compared with a loss of $59 million, or 14 cents per share, in the same period a year earlier. The most recent results included hefty restructuring charges, part of the company’s effort to appeal to customers amid these hard times. Macy’s said it hopes to see a payoff toward the end of the fiscal year.
Even if the economy starts to improve, it could take a while for the recovery to gain enough force that people feel comfortable enough to trade back up to retailers such as Macy’s for their clothing and other purchases.
“That’s really a better indicator of prosperity than recovery,” Montgomery said.
Wal-Mart signaled Thursday that it is already worrying about what might happen once people start spending more freely. In its earnings release Thursday, the company sought to convince investors that Wal-Mart shoppers are coming to the discounter for more than just the cheapest deal.
“When economic conditions improve, we believe customers who shop at Wal-Mart today will stay with us, because of the business improvements we’re making and continue to make,” Mike Duke, Wal-Mart’s president and chief executive, said in the statement.