While retailers are feeling consumers penny pinch, shares of discount chains are faring better than their full-priced and upscale counterparts.
An analysis of 12 discount, off-price and big-box retailers shows the sector is lagging behind the S&P 500 year-to-date, but outperforming the overall retail sector, where rising gas and housing prices and the recent credit crunch have weighed down a consumer's ability to spend.
Wal-Mart Stores Inc., Sears Holding Corp., Ross Stores Inc., Stein Mart Inc., Family Dollar Stores Inc. and Target Corp. all posted muted expectations for the remainder of the year — each citing, in part, macro factors.
As of market close Thursday, the group averaged a 1.1 percent decline in share price year-to-date, below the S&P 500's 3.2 percent gain during the same period, but above the S&P Retail Index's year-to-date decline of 6.1 percent.
The NPD Group chief industry analyst Marshal Cohen noted that retailers are seeing a clear disparity between lower- and upper-income shoppers for the first time in a long while — and that big-box and discount retailers' greatest challenge of late has been courting consumers who fall in between. The result is a fiercely competitive space where discount retailers have wavered focus from their core, low-income consumers, who are most impacted by rising housing and gas costs.
"It's more about conversion than attraction," said Cohen, who added retailers should take care to lure current customers into spending on a wider array of products in the store, rather than trying to attract new shoppers.
A.G. Edwards analyst Robert Buchanan said company-specific issues, negative or positive, affects company performance irrespective of the economy.
"A given retailers fate is not determined by how much wind is blowing over the lake," Buchanan said. "There is a certain amount of skill involved in maneuvering the boat."
Buchanan said retailers' better technology allows for tighter inventory and flexibility in uncertain economic times.
"They can better react to changes in demand and we're seeing that right now and that's why the earnings for the industry haven't dropped off a cliff," Buchanan said. "That said, we are in a slow period and it makes sense for retailers to plan conservatively on the inventory and expense front."
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