Retail stocks fell 1.2 percent Tuesday as Best Buy Co. Inc.’s fourth-quarter outlook highlighted what also could be a risk for fashion retailers — stronger sales of less expensive goods leading to weaker-than-expected gross profits.
This story first appeared in the December 16, 2009 issue of WWD. Subscribe Today.
With unemployment at 10 percent and the recession taking its toll, consumers are being more cautious than ever, prompting stores to roll out bargains that ultimately could eat away at gross margins.
The S&P Retail Index retreated 4.93 points to 411.47 as shares of Best Buy dropped 8.5 percent. Among the fashion decliners were J.C. Penney Co. Inc., down 4.2 percent to $27.69; Zale Corp., 3.4 percent to $2.88; Macy’s Inc., 3.2 percent to $16.93, and Nordstrom Inc., 2.4 percent to $35.95.
Dour reports from credit card operators weighed on the financial sector and helped push the Dow Jones Industrial Average down 0.5 percent, or 49.05 points, to 10,452.
Nordstrom is just one of the firms seeing stress among shoppers using its cards.
J.P. Morgan analyst Charles Grom noted the percentage of Nordstrom credit accounts that are 30 to 59 days delinquent rose for the fourth consecutive month, implying the Nordstrom cardholder “continues to have difficulty making monthly payments.”
Even though there are some signs of strength among consumers, 2010 is shaping up to be a long haul.
“People are looking into next year and things are probably not going to get much worse, but it’s going to be a really slow climb out of this,” said Marie Driscoll, equity analyst at Standard & Poor’s.
Driscoll said consumer spending would recede as a portion of the country’s gross domestic product, dropping from more than 70 percent in 2007 to about 67 percent.
“You want to be selective with these [retail] stocks,” she said, noting S&P has buy ratings on value players such as The TJX Cos. Inc., Ross Stores Inc. and Aéropostale Inc.