Summer looks like a washout for some US retailers

Consumers' confidence in the US economy, which had surged in April and May, fell in June.

By
July 1, 2009 11:01
3 minute read.

As Americans get ready to celebrate July Fourth, many merchants already have dismissed summer as a washout. Macy's flagship store has racks of summer tops, swimwear and dresses marked down as much as 50 percent, while luxury retailer Bergdorf Goodman is slashing prices on designer goods by as much as 70%. Meanwhile, piles of clothing as well as barbecue grills, tents and gardening tools are bypassing stores and heading straight to liquidators as merchants try to conserve their cash. Such deep discounting so early in the season is great news for bargain hunters, but it's a worrisome sign that shows a further weakening in retail sales since the end of May. Consumers' confidence in the economy, which had surged in April and May, fell in June, the Conference Board reported Tuesday. And major retailers will release June sales results next week. While unusually rainy weather across a broad swath of the country has dampened business, some analysts wonder whether shoppers are waking up to the harsh reality that the economy won't be getting any better soon - even as consumer spending makes up 70% of economic activity. That doesn't bode well for merchants, which need to get rid of summer inventory quickly to make room for fall goods that start to arrive next month. BMO Capital Markets analyst John Morris estimated that the volume and size of discounts for mall-based apparel retailers he tracks is 10% higher than last June even though inventory is down 20%. "It's the economy, not the weather," said Ahmed Youssef, a 28-year-old junior engineer from Jersey City, explaining why he's stuck to only necessities like groceries at Wal-Mart and computer accessories such as a $80 hard drive at Staples. Pam MacWilliams, a tourist from Oshkosh, Wisconsin, who on a recent Thursday was planning to scour for bargains at H&M's midtown Manhattan location with her two girls, said she's becoming less optimistic about a quick economic recovery. "I thought that the economy would turn faster," said MacWilliams. "I had high expectations. Now, I want to save more." US employers are still cutting jobs - although at a slower rate - and home prices are still falling, and now Americans are seeing a three-month stock market rally stall. Consumers' confidence in the economy has been rebounding since February, fueled in part by the stock market rise. But that improved mood hadn't translated into much relief for merchants because confidence levels are still well below the 100 reading that's considered healthy. The concern is that shoppers' mood could actually level off in coming months. Friday's government economic reports weren't comforting to merchants, showing that households used most of their government stimulus payments to boost savings to the highest level in more than 15 years in May, instead of splurging at the mall. "There was a lot of hope with the surge in confidence," said Dennis Jacobe, Gallup's chief economist. He said consumers were convinced that the second half would be better, but added, "You can live on that hope for only so long." According to a Gallup Poll survey of 1,000 consumers taken June 15-21, confidence has faltered as stocks have stumbled and gas prices have risen. Michael P. Niemira, chief economist at the International Council of Shopping Centers, estimated that June's same-stores sales have so far registered a 6% drop, worse than the projected 5% decline and May's 4.6% decrease. The figures exclude results from Wal-Mart, which no longer releases monthly numbers. Same-store sales, or sales at stores open at least a year, are considered a key measure of retailers' health. Niemira says he isn't reducing his forecast yet because he believes the true test will come when the weather warms up. That finally started to happen this past weekend, providing a much-needed relief to a swath of the country from the West Coast to the Northeast, which had received two or three times the normal precipitation for June, according to Karsten Shein, applied climatologist for National Oceanic and Atmospheric Administration's National Climatic Data Center. Much of the northern tier of the US has also had cooler-than-normal temperatures, he said. Stifel Nicolaus analyst Richard Jaffe predicts even deeper discounting. He estimated that 30% of the nation's apparel sales come from the Northeast, hit hard by the persistent rain. New York City had 21 days of rain in the first 28 days of June, the highest number in at least 50 years, according to research firm Planalytics Inc. Bill Angrick, CEO of Liquidity Services Inc., which auctions surplus goods to dollar stores and small resellers, said stores in the past had usually held out hope for procrastinators and didn't unload summer items until early August. But "there is no normal in this economic cycle," so merchants are cutting their losses, he said. So far this month, the number of auctions completed is up 37% from the same period last year, Angrick said.


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