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Thursday, Mar 28, 2024

Shoppers Just Can’t Get Enough

When the year began and pundits watched the housing market stumble and gas prices rise, many predicted that consumer spending would soon come to a screeching halt. But as the first half of the year draws to a close, there is little evidence that the proverbial shoe is dropping. Rather, it seems to be getting snapped up from retail shelves, along with apparel, consumer electronics and other discretionary purchases. As predicted, sales have slowed somewhat in comparison to 2006. But same-store sales, the key measure of how consumers are behaving at retail, have held up remarkably well for most retailers, and projections for the rest of the year are indicating more of the same. “We’re maintaining our guidance,” said Jharrone Martis, senior research analyst at Thomson Financial. “We think same-store sales will remain within the 2.5 percent to 5 percent growth range that has prevailed since 2003, and same store sales of 3 percent reflect a healthy U.S. consumer.” In May, consumer spending rose 5 percent for the second month in a row, according to data reported by the Dept. of Commerce. Many retailers in their most recently completed fiscal quarters reported same-store sales increases ranging anywhere from 3 percent at Best Buy Co. to more than 10 percent at Kohl’s Corp. There were some pockets of weakness, such as Abercrombie & Fitch Co., where same-store sales dipped by 4 percent for the fiscal first quarter ended May 5. And some indicators show that some of the sales growth is being driven by promotions that are cutting into retailers’ profits. “Early evidence suggests that consumer spending will be more difficult to predict this year but it appears to be accelerating in lower-margin categories,” said Darren Jackson, CFO at Best Buy in announcing the company’s results for the first quarter ended June 2. “We are confident that flat-panel TVs, gaming and notebook computers will remain very appealing to our customers. Yet the exact mix of sales could have an impact on our gross profit rate in the short term.” But while some analysts are still waiting for the slowdown in consumer spending, retailers, for the most part, are anticipating that sales and earnings growth will hold up for the balance of the year. A study recently conducted by Thomson found that gas prices have no correlation to how consumers spend their discretionary dollars. “Last year Wal-Mart had really weak comps and they blamed it on higher gas prices,” said Martis. “What we found out is that gasoline prices don’t have an effect on consumer spending. The only thing that mattered was personal income.” In May, personal income rose by 4 percent across the country, according to statistics released by the Commerce Department and Martis believes that, as long as it continues to rise, consumers will spend, spend, spend. The activity at local shopping malls would seem to confirm Thomson’s findings. Malls are reporting that sales have held up through the ups and downs of gas prices and in spite of the downturn in the housing market. “We don’t see people closing their pocket books,” said Nicole Flynn, a spokeswoman for The Oaks, a Macerich property in Thousand Oaks. Worried that construction activity to expand and renovate The Oaks would deter shoppers, the mall offered a special promotion several months ago in its newsletter updating shoppers about the renovation. Shoppers who brought the newsletter with combined receipts totaling at least $200 in purchases for the day to the mall received a $20 gift card to use at the center. “Our threshold was $200, but people spent over $400 to get their incentive,” said Flynn, who conceded she was pleasantly surprised by the results. Like the experience at The Oaks, mall operators say that the crowds that came out when Apple launched its long-anticipated iPhone are a further indication that shoppers are not holding back on purchases, even expensive ones. “At last Friday’s launch we had over 600 people in line to buy an iPhone that costs over $500,” said Janet LaFevre, senior marketing director at General Growth’s Glendale Galleria. “That’s a substantial purchase. We haven’t seen a softening of sales mall-wide. People are holding solid.” Parking lots at malls are still crowded, and mall operators say that stores have not offered any but the usual promotions to lure shoppers around the July 4th holiday. “We are going to be cautiously optimistic,” said Lefevre. “I don’t think we’re going to see any huge swings one way or another before the end of the year.” Meanwhile, retailers are continuing to expand. At Glendale Galleria, Target is expected to open its three-story, 180,000-square-foot store at the end of this month. J. Crew Group Inc. projected comparable store sales would grow by mid-single digits for the year and earnings per share would rise more than 20 percent for the year. Shoe Pavilion Inc. is anticipating full-year sales will increase about 18 percent. Best Buy said it expects comparable store sales to increase in the range of 3 percent to 5 percent and earnings to rise 9 percent for the full year. And Kohl’s raised its earnings guidance to a range of $3.75 per share to $3.87 per share for the full year from $3.68 to $3.84 per share previously. “The retailers are not scaling back from what I see,” said Flynn. “For us, it’s the sustainability of companies like Countrywide and Amgen and Baxter. These companies brought great wealth to the area, and if there are any changes with the workforce that will have an impact on us because those are the people who live and work and buy locally.”

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