with contributions from Ed Finkel
 on May 16, 2014

It’s not just the weather.

A string of retailers reported first-quarter results Thursday — including Wal-Mart Stores Inc., Kohl’s Corp., J.C. Penney Co. Inc., Nordstrom Inc. and Dillard’s — and the numbers reflected the tough winter weather in the first two months of the year and later Easter.

But there are deeper issues.

“The big macro issue we all face is that we have a consumer that is stressed,” Kevin Mansell, chairman, president and chief executive officer of Kohl’s, told WWD at the company’s annual meeting in Menomonee Falls, Wisc. “Real incomes haven’t risen much, and [costs of] nondiscretionary items like fuel and food have increased. We’re all fighting for a smaller dollar amount. There’s definitely been this bifurcation [of incomes].”

Higher-end retailers such as Nordstrom have been less impacted because “luxury” customers are doing better in the current economy, Mansell added.

Four of the five companies on Thursday reported lower profits for the quarter, while Penney’s registered slightly larger losses although outperformed Wall Street expectations in every other area, including sales, comparable-store sales and earnings per share. As a result, the retailer’s shares soared almost 20 percent in after-hours trading to above $10.

Craig Johnson, president of Customer Growth Partners, tied retailers’ weak results to a lack of disposable income. “In the middle of the last decade, real income growth was about 3.6 percent, and today we’re lucky if it gets to 0.6 percent,” he said. “It’s almost flatlined and you can only expect minimal growth under those circumstances. Weather can only explain some of what’s been going on, and it’s been going on since the middle of last year.”

Adding to the pressure is a still-difficult jobs picture, with only 48 percent of working-age adults holding a full-time job, and signs of inflation in areas including food and gasoline. “That’s contributed to a depressingly promotional atmosphere as it’s rotated spending — there’s less left for discretionary purchases like apparel because so much is being taken up by utilities and now with the upward movement in food prices,” he said. “That had a crushing effect on apparel and department stores.”

He continues to believe, like many in the apparel sector, that there will be improvement in the second half of the year based both on better consumer confidence and the weak comparisons against which many stores will be up against from the second half of 2013.

Mark Cohen, a retail veteran who’s now a professor at Columbia Business School, felt that the best performances from the first quarter will come from those who approached the quarter cautiously and with an emphasis on control of expenses and inventories.

“Business was really tough in the fourth quarter and it’s never good in the first quarter when it’s bad in the fourth,” he said. “Any reasonable expectation of problems suggests taking a conservative view of inventory and expenses, and there were more than a few of them in the way the second quarter moved along last year.”

David Bassuk, managing director of AlixPartners, said there’s certainly been an improvement in business conditions since the arrival of spring weather, but he’s reluctant to make too much of it.

“There is a fundamental reshaping of the market going on,” he said. “The decline in traffic and its changing patterns are here to stay. The ability to shift gears into social, digital and e-commerce — this is what will separate the winners from the losers.”

Mansell agreed, saying Kohl’s and other midmarket retailers are hustling to keep up with changes in technology and how they have affected consumer shopping behavior. Kohl’s has spent $600 million on technology in 2013 and 2014 and will be focused on mobile and in-store technology this year, Mansell said.

“The transformation of shopping is a big issue,” he said. “We need to be online. We need to be in-store. And we need to be seamless if they shop online and decide to come in and buy in-store. The money we’ve spent on technology is an acknowledgment that this is a changed world. It’s very different than it was five years ago.”

Here, Highlights From the Results Reported Thursday >>

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