THE SPRING THAT WASN’T: BIG STORES EXPECTED TO POST A DISMAL JUNE
Byline: David Moin / With contributions from Thomas J. Ryan
NEW YORK — In a troubling sign that consumer spending is stalling, the nation’s big retailers today are expected to widely report poor June sales. The causes: rainy and cool weather, dull fashion and rising concerns about the economy and the prospect of declining financial markets.
Stores are expected to take it out on manufacturers with order cancellations and more cautious planning for fall and holiday 2000. And, of course, by seeking markdown money.
“It’s tin cup month again,” said one retail source.
With the Dow Jones Industrial Average down over 8 percent since the beginning of the year and the Nasdaq around 1,000 points off its 12-month high, the days of unbounded consumer spending already seem like a distant memory. Consumers are also getting pinched by rising gas prices — exceeding $2 a gallon — and are spooked by the Federal Reserve’s resolve to keep inflation in check by raising interest rates. It’s been done six times already.
On Wednesday, retailers expressed concerns about weak power brand offerings, and a few officials ripped into such labels as Tommy Hilfiger and Liz Claiborne for lacking fashion newness. Reports on some other major labels were more mixed, while concerns were high about Steve Madden and his legal problems stemming from alleged illegal stock transactions.
Some uptick over the Fourth of July weekend was noticed, but will be mostly reflected in July sales.
From Wall Street retail analysts this week, there was a flurry of reports that broad-line chains have been particularly beset by economic trends, while the mass chains and department stores fell off the mark for the most part. Estimates on second-quarter profits are dropping due to recent weak sales.
On the other hand, the luxury sector appears to be holding up.
“Retailing in June was very challenging,” stated Hal Kahn, chairman and chief executive officer of Macy’s East. “Apparel was very soft and even with the warmer weather at the end of June and larger markdowns, the business did not significantly respond. There is definitely a cautious concern about consumer traffic for the future. That’s partly due to the economy and partly due to the lack of excitement in fashion. The weakness in apparel didn’t just happen in June. It accelerated in June. It happened throughout the spring season, and you can’t blame it all on the economy.”
Last year, capri pants, among other fresh items, sparked sales and traffic at Macy’s and other important stores. So has private label merchandise in many cases. As far as this season, the ‘must-have’ item is missing from the selling floors, Kahn observed.
It was missing last month, as well. May sales were equally dismal.
Today, Dillard’s, Federated Department Stores, Kmart, J.C. Penney, May Department Stores and Target are all expected to report that they fell under plan last month, while Wal-Mart and Sears, Roebuck should be in line with past forecasts.
Nordstrom, coming off weak comparisons from a year ago and with livelier marketing and women’s areas, should meet its plan, and Kohl’s should also report another strong period. Saks Inc. is seen reporting weak sales at its department stores, with the Saks Fifth Avenue division of Saks Inc. doing better, and the Neiman Marcus Group still going strong. Allen Questrom, chairman and chief executive officer of Barneys New York, described June business as “very good, and ahead of plan.”
“It’s been pretty much the same way all season,” he said, though he added that a couple of stores were off the pace.
Compared with other retail sectors, “luxury has done better because it deals with more newness,” Questrom observed. Better, moderate and lower-priced sectors tend to take longer to latch onto trends in colors and prints, he explained.
Peter Rizzo, president of Bergdorf Goodman, said Bergdorf’s had a great spring season, though compared with March, April and May, he said, “June had a smaller increase, but it was still a pretty substantial dollar month.” Asked if Bergdorf’s was thinking more conservatively, altering plans for fall, Rizzo replied, “Not at all; we’re actually planning a little aggressively.”
Markdowns last month were as vivid as post-Christmas.
“I’ve never seen more markdowns in my life, and they were deeper than ever,” stated Mark Shulman, chief operating officer of Casual Corner.
Shulman contended that his own chain bucked the trend by posting high gains last month, and analysts agreed that some apparel specialty stores may not be getting the full brunt of the consumer belt-tightening yet. Benetton’s Carlo Tunioli, executive vice president for the U.S., for example, said Benetton’s Fifth Avenue and West Broadway stores in Manhattan and a unit in Atlanta did well last month. “It doesn’t look like the slowdown was as significant for our business,” Tunioli said.
However, Shulman said that in visiting stores in malls, he noticed soft goods stores were filled with signs promoting 40 percent off the ticketed price, which could mean a 50 or 60 percent reduction figuring in earlier price breaks. In recent years, reductions generally ranged from 20 to 35 percent, Shulman said.
ShopKo Stores said last week that poor second-quarter sales and the sale of its pharmacy benefits management unit would cause second-quarter earnings to come in at around 25 cents a share before special items, down from 32 cents a year ago. The discounter said uncertain economic conditions, cool and wet weather in many markets and increases in gas prices, particularly in the Midwest, pressured sales.
Ames Department Stores warned in late June that lower-than-expected sales would lead to a profit decline for 2000, prompting analysts to revise second-quarter expectations to a loss of 58 cents a share against earnings of 24 cents a year ago. The discounter said it believed its sales shortfall was directly related to the below-normal temperatures and above-normal rainfall in its Northeast and Mid-Atlantic operating area since mid-March.
June is typically characterized as primarily a clearance period, yet it’s a heavy volume period for certain retailers focused on selling summer goods.
“It might not be for all retailers, but for us, in terms of dollar amount of sales, it’s one of the largest months, in the top four for the year,” said Michael Chummers, Kmart’s investor relations spokesman. “You need to sell all that summer stuff in June, and if you don’t, there’s not much time left to get rid of it. Basically, you only have July.”
Kmart’s inventories are “healthy and kind of where we want them to be,” Chummers said, while adding, “Our plan was 3 to 5 percent comp-store gains, and [for June] it will be flat or slightly negative.”
While Kmart’s inventories may be under control, excess inventories are flooding the marketplace.
“When our business gets busy, it’s not necessarily good for other people,” said Steve Goldberger, chief operating officer of RetailExchange.com, a B2B Internet service that handles closeout merchandise and links buyers and sellers. “There’s a huge amount of excess inventory available in soft lines, at least as much as last year.”
Peter Hayes, president of sales for RetailExchange, said, “Retailers are trying to clean their own inventory level at store level. Retailers never bought very heavily into summer goods. There’s a tremendous amount of [excess] knits, swimwear, mix-and-match coordinate goods that didn’t make it through spring, and a lot of bodywear just became available. There’s even a lot of branded footwear that’s around.”
On the positive side, “Shorts have been strong, and there are some shorts available in the off-price market, but things in denim and stretch have been very much in demand, so there’s not a lot of that around, and capri pants were good as well.”
On the manufacturing side, Hayes said, “They’re starting to get calls to push back on deliveries. Some manufacturers are concerned about what kind of early fall it will be.”
“I think it’s here. You have all the makings of a less buoyant consumer market over the next six months,” said Arnold Aronson, managing director of retail strategies, Kurt Salmon Associates.
“Smart retailers today are relooking at their fall plans. In general, they’re looking to a pretty good fall, but this is probably a time for a more sober review of fall plans before the final purchasing die has been cast. At this point, they can modify, though a good part of the fall has been bought. There is flexibility in reorders and flexibility in how big the buy will be for the fourth quarter.”
According to Deutsche Banc Alex. Brown, department stores will be up just 1 percent on a same-store basis for June, apparel specialty chains for youth will be down 5 percent, though adult specialty apparel chains, such as Talbots and Men’s Warehouse, will be strong. Off-pricers are seen at around 2 percent.
Late Wednesday, American Eagle Outfitters said June’s same-store sales fell 5.3 percent and described current Wall Street estimates as “too high,” given steep markdowns at the teen chain. Wall Street’s consensus estimates are 28 cents a share in the second quarter, down from 35 cents a year ago.
“Sales results for June were below even the more guarded outlook we expressed in May 2000,” said Laura Weil, American Eagle’s chief financial officer on the chain’s monthly call.
The result compared with a 26.3 percent last year. The first and second weeks saw negative single-digit comps; second and third, positive low-single digits, and the fifth, high double-digit declines, Weil said.
Markdowns led to an 11.3 percent decline in average unit selling prices during the month. By divisions, men’s had “slightly negative” comps while women’s suffered “more significantly negative” same-store drops. “Both performed well below expectations,” Weil said. Bestsellers were knits, skirts and denim in women’s, and cargo shorts and denim in men’s. By region, same-store sales were up in the mid-single digits in the West, while single-digit declines were seen in the Northeast, Mid-Atlantic, Southeast and Midwest.
For fall, American Eagle is planning to stress denim in a variety of fashions, fabrics and washes, as well as stretch fabrics for women. It is also launching its “Alive” personal care line.
A chain bucking the trend was Hot Topic, which reported same-store sales jumped 25.4 percent in June.
“As we moved into summer, our sales momentum continued with all major merchandise categories producing strong per-store increases over last year,” said Betsy McLaughlin, president of Hot Topic, which sells rock ‘n’ roll-influenced apparel for teens. “Our promotional activity has been very low and our inventory is on plan and well positioned for July. Our stores will begin to receive back-to-school merchandise over the next weeks, and based on recent selling of merchandise tests, we are optimistic about sales for the back-to-school season.”