Wednesday, July 12, 2006


Retailers Cut Back As Consumers 'Cry Uncle'

Business Week looks at the US jobs picture. "U.S. retailers are no longer the job-creation engine they were, suggesting that consumers may finally be crying 'uncle.' Execs are concerned about weakening sales, which they expect to decline by 4% to 6% over the next fiscal year. 'We have to work hard to keep our labor and hiring in check given our outlook in same store sales,' says Mike Marchetti, Finish Line's executive vice-president of store operations."

"Around the country, retailers are echoing similar sentiments, and many are holding off on their hiring plans. Their actions coincide with a surprising third consecutive month of job losses in the retail sector, according to last week's job numbers. The U.S. Labor Dept.'s job report on July 7 showed that retailers had shed 7,000 jobs in June, after a loss of 71,000 jobs in the previous two months combined."

"It's unusual that retailers are trimming their workforces when the rest of the economy is growing. Now, the concern is that retailers, who are positioned to detect the pulse of consumers more quickly than many other types of companies, are sensing trouble ahead."

"'Something is screamingly wrong with consumers, and retailers are reacting,' says Richard Hastings, economic advisor and a senior retail analyst."

"Retailers, from home-furnishing stores to large discount chains, are skittish that the prospects could get even worse. They worry that consumer spending may suffer from the pile-up of adverse affects. With home prices flat or on the decline, fewer consumers will be able to take out home equity loans to finance other purchases."

"And consumers are finding it tough to avoid spending more on gas in the short term, since it's difficult to switch quickly to a more fuel-efficient car or shorter commute. Instead, they may trim expenses elsewhere, at restaurants or department stores, so they can fill up the tank."

"The world's largest retailer, Wal-Mart Stores, has been one of the most outspoken on the issue. Sales at its stores open at least a year rose 1.2% for the five weeks ended June 30—its smallest gain in more than a year, despite discounts to lure customers. 'Traffic was down during the month,' says Tom Schoewe, executive VP and CFO of Wal-Mart."

"Wal-Mart continues to see customers consolidating their trips, and its research of shoppers shows increasing concern over the rise in gas prices. 'In June, we reinforced Wal-Mart's low prices and value throughout the store by highlighting rollback prices on approximately 500 products,' says Shoewe."

"Starting in June, national grocer chain Albertsons started shutting down the first of the 100 stores it plans to close this year. Also starting in March, Federated Department Stores, the parent of Macy's and Bloomingdale's, started the process of eliminating 6,200 jobs as part of its takeover of the May Department Stores Company. Radio Shack is also in the process of closing up to 700 underperforming stores around the country."

"Right now, the most worried retailers are the discount store chains, because consumers with lower incomes tend to be the first to pull back when tough times hit. Discount store operator Family Dollar Stores, reined in its expansion plans this year to 350 new stores, from its typical 500. Other dollar-store chains are also wary. 'We continue to be concerned about the impact the current economic pressures are having on our customers, particularly high gasoline prices, increasing interest rates, and rising personal debt,' says David Tehle, CFO of Dollar General Corp., which has 8,000 stores in the U.S."

"Spokeswoman Elise Hasbrook says that Finish Line is staffing stores with fewer people and will be doing less hiring in the back-to-school season, which starts next week and runs through Labor Day. Consumers may just have to help themselves when they go shopping in the coming months—if they decide to make a trip to the store at all."

It's only anecdotal, but I see small businesses shrinking here in retail-reliant Arizona. More small outfits for sale in the 'business opportunities' column of the classifieds. It could be the borrow and spend economic model has run out of rope.
Another nice gain in gold. Things are on the move again. From 550 to 650 in...a month?
People don't seem to be driving any less here in SoCal and here's link backing up the notion:

Apparently the American consumer is not allegeric to $3.00 gasoline after all.
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