For Federal Reserve chairman Ben Bernanke, it’s “green shoots.” For retailers, the new buzzword is “stabilization.”
While business remains challenging for most stores and no one is expecting a massive turnaround anytime soon, there are signs the worst may be coming to an end. The stock market is seeing relatively consistent gains, housing sales in some of the hardest-hit markets are simmering again and retailers from Wal-Mart Stores Inc. to J.C. Penney Co. Inc. to Casual Male Retail Group Inc. and Claire’s Stores Inc. point to a slight uptick in sales this spring that could be the first signal of better times ahead. Further signs are expected today when retailers release comparable-store sales.
In an address to Congress earlier this week, Bernanke said: “The recent data…suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing. Consumer spending, which dropped sharply in the second half of last year, grew in the first quarter. In coming months, households’ spending power will be boosted by the fiscal stimulus program, and we have seen some improvement in consumer sentiment.”
Although the recovery is not expected to be swift and unemployment figures will be among the last numbers to rebound, the picture is indeed brightening.
The rebound in consumer confidence in April prompted Lynn Franco, director of The Conference Board Consumer Research Center, to comment that signs indicate “that conditions have not deteriorated further and may even moderately improve in the second quarter.”
At its analysts meeting in mid-April, Penney’s revised for the second time its first-quarter earnings per share guidance and is now expecting flat to slightly positive results. This was the second revision for the retailer, which had initially expected a loss of 20 cents to 30 cents in the period. Chief executive Myron E. “Mike” Ullman 3rd said compared to the “volatile” market of a year ago, the situation now is “more predictable.” Although it’s still “not a trend we like,” sales at Penney’s are running “slightly better than plan,” he said.
In reporting fourth-quarter results on April 23, Claire’s also indicated business is stabilizing and first-quarter sales are now running only “slightly negative.”
With single-digit declines now jokingly referred to as the “new up,” these numbers seem to indicate consumers are slowly starting to open their wallets and spend again. Eduardo Castro-Wright, head of Wal-Mart’s U.S. stores, last week said the retailer has recently seen a shift in buying patterns. As a result of lower taxes and gasoline prices, consumers aren’t focused as much on low-cost groceries and necessities and have begun to indulge themselves again “to buy some of the discretionary items that they were not buying before.”
A large portion of the balance sheet improvements certainly come as a result of tough decisions retailers have made over the past few months. Although March same-store sales were way down, April numbers are expected to be much better, thanks in large part to the Easter shift. Significant cuts in inventory, hefty expense reductions and scale backs in new-store growth are also helping stores rebound from the unprecedented free fall in sales that started last fall and will make same-store comparisons easier later in the year.
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