Dow Sees Best Week in 21 Years

A war with Iraq might not be so terrible for retailers after all, but if it does impact business. Observers say effects will likely be felt disproportionately by channel.

NEW YORK — With the long-awaited “Showdown with Saddam” now finally under way, financial experts, and the equity markets, appear convinced that confrontation beats expectation.

This story first appeared in the March 24, 2003 issue of WWD.  Subscribe Today.

As U.S. and British bombs fell on Baghdad Friday, U.S. stocks went in the opposite direction, posting nearly a 3 percent advance that elevated the Dow Jones Industrial Average more than 8 percent for the week, its strongest advance in 21 years.

The Dow Jones Industrial Average on Friday shot up more than 200 points once it became known that the “shock and awe” phase of the Iraq campaign had commenced. After climbing 235.02 points, or 2.8 percent, to close at 8,521.62, the Big Board was able to claim its first eight-day run of gains since December 1998. The Standard & Poor’s 500 also put together an eight-day growth streak to close Friday up 2.3 percent, or 19.88 points, at 895.72.

The S&P Retail Index did nearly as well, gaining 5.36 points, or 1.9 percent, Friday, and ending the week at 283.86.

The prospect of a short war, amplified by events prior to the weekend, left investors feeling somewhat relieved and rather bullish. The effect of the war on March retail sales won’t be known until comparable-store sales results for the month are released in early April, but so far, the advent of military action clearly has been a boon to the stock markets.

Whether the war is over as quickly as advertised or drags on due to a long siege of Baghdad or some other unforeseen event, what really matters, sources say, is whether consumers stay glued to their televisions to watch it.

Consultant Emanuel Weintraub of the consulting firm that bears his name sees a consumer who will tire quickly of watching endless, repetitive coverage of the hostilities and will return fairly quickly to life as normal.

“After about a week, we’ll be back to pre-Iraq normal, as far as consumers are concerned,” said Weintraub. “After five, 10, maybe 12 days they’ll get tired of sitting in front of the TV, go back to their normal viewing habits and shop as they did before.”

That doesn’t mean retailers are off the hook, however, because the war may serve as only a temporary distraction from much larger, ongoing problems, according to Weintraub.

“Don’t forget that before the war, business was terrible,” he said. “Consumers shop based on income and job security. Until the larger economic problems that are currently being masked by the war are solved — stagnation, price deflation, uncertainty — we’ll go back to what we had before: normal, terrible.”

If retailers do feel a pinch in their March comparable-store sales, observers say it will hit some channels more sharply than others, with teen retailers skating through as their perennially challenged department store cousins continue to suffer.

“The younger shoppers who go to places like Hot Topic, Pac Sun and Abercrombie & Fitch are going to continue to shop,” said Richard Hastings, chief economist at Bernard Sands, a New York-based retail credit consultant. “They’ve got plenty of years ahead of them and ample credit and could only find Iraq on a map if it had a belly button on it. It’s people who are 50 years old and more who have seen their wealth evaporate who won’t be shopping. They’ll sit at home and watch the war on TV continuously.

“As a result,” he continued, “department stores will suffer, especially the Kohl’s, J.C. Penney and Sears sector of the channel. Certain specialty retailers such as Talbots and Ann Taylor will take their hits. And we’ll probably see an effect on Chico’s comps.”

Another concern is that even if consumers turn off their TVs, or the war is won quickly, potential shoppers will still be left with an uncertain world where the threat of terrorism and the sluggish economy will continue to hurt retailers’ results. In a research note to investors, Wells Fargo Securities analyst Jennifer Black agreed that the war will hurt department stores more than teen retailers or specialty chains, but she also pointed out the “FUD” factor: Consumers and investors simply do not like Fear, Uncertainty or Doubt.

“We believe that we are in an environment full of FUD,” wrote Black. “We expect slight earnings shortfalls to be reported by some of our companies. We believe that the FUD factor could cause department stores to cancel or push out orders…which could impact apparel manufacturers. This could affect the latter part of the first quarter and second quarter for the apparel companies. We believe that the teen sector could be less affected by FUD than our other companies. We feel that teens don’t really understand the complexities of the world and are driven by outside influences.”

Specialty stores performed especially well as the second Persian Gulf War went into high gear on Friday. United Retail posted a 33 cent, or 20.8 percent, increase to close at $1.93. Other strong performances came from Bebe Stores (up 2.7 percent to $12), Christopher & Bank (up 3.7 percent to $18.22), Claire’s (up 5.5 percent to $25.51), Casual Male (up 3.5 percent to $2.66), Cato Corp. (up 4.2 percent to $18.40), Coldwater Creek (up 3.1 percent to $10.05), J. Jill (up 7.7 percent to $12.05), Mothers Work (up 6.6 percent to $22.39), Pacific Sunwear (up 3.3 percent to $20.89) and the recently beleaguered Wet Seal (up 6.4 percent to $7.94).

Among broadlines stores, Factory 2-U enjoyed an 11.6 percent run-up to $3.85, Dillard’s advanced 3.2 percent to $13.81 and Sears added 7.8 percent to close at $21.97. TJX Companies added 4.4 percent and ended the session at $18.48.