A Rocky Road for Retail: Retailers struggle to maintain 2007 sales

The National Retail Federation’s June numbers show soft consumer spending: June retail industry sales, excluding automobiles, gas stations and restaurants, rose just 1.3 percent compared to 2007 and 0.2 percent from May.

“What we’ve seen for the first half of the year is very slow growth in sectors that are more discretionary, such as apparel, electronics, sporting goods, and more of steady or solid figures in the health and personal care category or groceries,” said NRF spokeswoman Kathy Grannis. “Consumers are buying their essential needs, whether it’s medicine or food for the family.”

The trend can be seen in the numerous bankruptcies filed in recent months; the list includes Linens ‘n Things and Sharper Image.

One company that depends on discretionary spending is Gold Minds, where owner Steven Diullo said monthly sales have been down anywhere from 15 percent to 35 percent each month compared to 2007. According to previous SBJ coverage, Gold Minds, which specializes in children’s toys and educational supplies, reported 2007 revenues of $400,000.

“I would say, because I also keep in contact with other toy retailers, that people don’t have as much disposable income as they have in the past, with gas and all the other economic issues going on,” Diullo said. “They’ve tightened the purse strings.”

Charlie Pettijohn, marketing and business professor at Missouri State University, noted that consumers also are feeling the pinch from other directions, including rising food prices.

“Combined with that is the fact that income is flat,” he said. “With jobless rates going up and consumer confidence levels going down, we’re in – at best – a mild recession. I think you’ll see … the discount retailer doing pretty well as you tighten your belt, but for upper-end retailers there may be a shakeout.”

The shakeout has already begun; in addition to the aforementioned retail bankruptcies, restaurant chains Bennigan’s and Steak & Ale closed all corporately owned stores July 29 as their parent company filed for Chapter 7 bankruptcy.

Back-to-school bump?

Some retailers expect the back-to-school season to boost sales, a trend that’s been seen in the past.

NRF says back-to-school shopping, including that for college students, is expected to bring in more than $51 billion in 2008, which makes that season the second-most lucrative for retailers, trailing only the holiday season.

“The winter holidays brought in $470 billion last year, so the combined expected $51 billion (for back-to-school) shopping this year is a drop in the bucket comparatively, but it’s very important to all retailers,” NRF’s Grannis said, noting that retailers also use the back-to-school season to gauge potential popularity of items for the winter season.

She also noted that this year’s anticipated back-to-school sales would be a slight increase compared to 2007, due partly to an expected bump from federal tax rebate check spending.

“There are a lot of people who strongly feel that the checks are gone, and the spending is over,” she said. “But some families received their checks as recently as two or three weeks ago, and that’s a lot of money to spend in two weeks. A lot of families may have stashed some away and decided to use it on back-to-school expenses.”

MSU’s Pettijohn isn’t so sure that the rebate checks are going to be used for that purpose, however; he said most people are using their checks to pay down debt or prepare for a rainy day.

“It’s one of those situations where you wonder, ‘What if they hadn’t done it? What would have been the result then?’” Pettijohn said of the economic stimulus rebates. “That’s impossible to measure. But no, it didn’t have the profound impact that was hoped for.”

Diullo, for one, said he hasn’t seen much of a boost from the rebates, though he added that many of his clients make too much to qualify for the rebate check or would not see much impact on their budgets.

The rest of the year

What is to be expected for the rest of 2008 is unclear – retailers and industry experts agree that sales won’t likely increase much compared to 2007.

Terry Hicklin, owner of Candy House Gourmet Chocolates, is among those retailers who expect the rest of the year to be flat compared to last – and that’s after several months of sales matching last year’s record levels and his best Valentine’s Day season ever earlier this year.

“It’ll be interesting to see what happens, especially with our corporate customers – that’s going to be hard to predict,” Hicklin said. “We’re not planning for major increases, but it’s going to depend on our corporate customers sending gifts – are they going to cut back or not? That’s the only thing we don’t really have a feel for.”

Pettijohn said that while Springfield’s retail sector won’t be as profoundly affected as in other parts of the country, level performance for the rest of the year is a realistic goal.

Gold Minds owner Diullo isn’t even expecting that for the last few months of the year.

“August is traditionally our biggest month, both because of back-to-school shopping and also with birthdays – August is the most popular month for birthdays,” he said. “I still expect August to be off – probably in the 10 percent range – and I imagine that will hold for my business through the end of the year.”

Hicklin is more optimistic about his business outlook – as he puts it, “If things are good, you can have diamonds and chocolate, and if things are bad at least you can console yourself with chocolate” – but he still has doubts.

“Items like ours are maybe a little easier (to afford) than things like a new suit or other larger purchases – but of course, a month from now I may be singing a different tune,” he said.

Buying the Necessities

National Retail Federation’s June numbers show continued soft consumer spending compared to 2007, along with a focus on necessities rather than discretionary purchases:

Total retail sales – up 1 percent

Retail industry sales (excluding autos, gas and restaurants) – up 1.3 percent

Health and personal care stores – up 2.7 percent

General merchandise stores – up 4.8 percent

Food and beverage stores – up 3.1 percent

Clothing and clothing accessory stores – unchanged

Source: National Retail Federation

Spending Seasons

The winter holidays are by far the largest driver for retail business, based on 2008 spending estimates from the National Retail Federation.

1. Winter Holidays, $469.9 billion*

2. Back to School/College, $51.4 billion

3. Valentine’s Day, $17 billion

4. Mother’s Day, $15.8 billion

5. Easter, $14.4 billion

6. Father’s Day, $9.6 billion

7. Super Bowl, $9.5 billion

8. Halloween, $5.1 billion*

9. St. Patrick’s Day, $3.6 billion

* 2007 actual numbers, not 2008 estimates

Source: National Retail FederationM[[In-content Ad]]