INDUSTRY NEWS

Weakening Consumer Demand Influencing Retail Results?

Sales growth is the life blood of retail. Since WWII, commerce has been stimulated by the robust spending habits of the American consumer, fueled by the proliferation of new retail businesses and satellite locations. After all of these years, retail executives in all functions still succeed or suffer from results reported as a percentage of sales. Ever hear the old axiom “sales volume cures all ills?”

Recent U.S. retail news was pockmarked with disappointing quarterly results from unexpected quarters, especially within the discount end of the spectrum. Rent-A-Center reported that sales revenues dropped by over $30 million in its core U.S. segment in the fiscal quarter that ended June 30. Same-store sales in that segment dropped 4.7 percent. Family Dollar Stores announced a 1.8 percent decrease in comparable store sales for its fiscal quarter ending June 1. The company also plans to close 370 underperforming stores before the end of the fiscal year, and that the net new-store growth would be barely positive.

Howard Levine, CEO of Family Dollar, said it succinctly in his comments from July’s earnings conference call. “Our core low-income customers continue to deal with elevated unemployment levels, cuts to government benefits, and volatility in energy prices. They are tightly managing their spending as a result.”

Sales growth remains generally positive for moderate to upscale retail. The focus on Internet-based direct sales has helped immeasurably. However, consumers are “trading down” from their normal shopping venues in order to find better value, deep discounts, or everyday low pricing in order to spend less money.

Disappointing sales in the discount segment should get our attention. Aside from places like the dollar stores, Goodwill Industries, and the Salvation Army, there just aren’t any cheaper places to shop. Is this an indication that the American consumer is running out of cash and available credit? Such a constriction of demand-driven spending hasn’t been witnessed in our lifetimes. The median income, adjusted for inflation, for an adult American is now lower than it was in 1973. This is a serious erosion of purchasing power. The problem isn’t confined to retail, either. Would you believe that IBM has had nine consecutive quarters of sales declines?

Spending on Essentials

The Gallup organization conducted a comprehensive survey, titled “Consumers Spending More, Just Not on Things They Want.” They found that consumers were spending more on essentials, because prices have risen. The American consumer, they opined, is “straining against rising prices on daily essentials to afford summer travel, dining out, and discretionary household purchases—the kinds of purchases that ordinarily keep an economy humming.” Following is more from the Gallup survey.

The top of the spending list: ■ Groceries—59% spent more, 10% spent less. ■ Gasoline—58% spent more, 12% spent less ■ Utilities—45% spent more, 10% spent less ■ Healthcare—42% spent more, 8% spent less ■ Household goods—32% spent more, 5% spent less ■ Rent—32% spent more, 9% spent less

The bottom of the spending list: ■ Retirement savings—18% spent more, 17% spent less. ■ Leisure activities—28% spent more, 31% spent less ■ Clothing—25% spent more, 30% spent less ■ Consumer electronics—20% spent more, 31% spent less ■ Travel—26% spent more, 38% spent less ■ Dining out—26% spent more, 38% spent less

by Robert L. DiLonardo

DiLonardo is a well-known authority on the electronic article surveillance business, the cost justification of security products and services, and retail accounting. He is the principal of Retail Consulting Partners, LLC (retailconsultingllc.com), a firm that provides strategic and tactical guidance in retail security equipment procurement. DiLonardo can be reached at 727-709-6961 or by email at rdilonar@tampabay.rr.com.

Negative Impact of the Current Job Market

Contrary to what one might read in the popular media, the current job situation in America remains troubling, especially in the lower and middle classes. More and more people must cobble together two part-time jobs instead of one good full-time job.

Unfortunately, full-time jobs are still scarce and the cost of essentials is rising. David Stockman, economics blogger and former head of the Office of Management and Budget under President Reagan, noted that the level of full-time, family-supporting “breadwinner” jobs in the U.S. economy is still 4.4 percent below the 2007 peak. Millions of working-age people are still sitting discouraged on the sidelines—the labor force participation rate is 62.8 percent, matching the lowest level since 1979. People in marginal or part-time jobs are unlikely to drive consumer spending.

In a recent interview with Reuters, Bill Simon, the president and CEO of Walmart U.S., said, “The hiring rebound reported by the U.S. Labor Department is not translating into increased customer spending in Walmart stores; the U.S. economy is ‘not getting any better or worse’ for Walmart’s core customers; and that the response by Walmart’s core customers to the ‘difficult’ economic environment is ‘not the best thing in the world for a retailer.’”

The readership of this magazine works in a broad spectrum by retail vertical market. Each of you has had your own experience since the recession began. The sales volume axiom has worked for many years. Let’s hope things turn around sufficiently, so it remains a truism into the future.