Retail Sales: Call It A Comeback? Maybe For Just One Day
L.L. Cool J put it best: “Don’t call it a comeback!” While the 80s/90s rapper is far from a retail analyst (he does have his only clothing line though), the idea best describes what I took away from same store sales results for the month of April.
It is irrefutable that sales in April were much better than expected. Sixty-one percent of stores beat expectations and 39% missed expectations.
These results were a much-needed confidence booster for the retail industry. But a word of warning to optimists: read beyond the numbers when you’re looking at sales results at Wal-Mart ,Saks and Costco .
Price and necessity are the key motivators for consumers now. This is a Wal-Mart’s economy as people are buying bargain staples like food and groceries. That’s why the world’s biggest discounter posted a surprising 3.2% gain while competitor Target posted a weaker than expected 3.1% increase. Why?
As Jeff Klinefelter of Piper Jaffray points out--Target and Wal-Mart run fundamentally different businesses. Around forty percent of Target’s business comes from sales of discretionary items like clothing. Necessity versus discretion is the dividing line between retailers right now.
Department stores also reflect this trend. While high-end Saks posted a whopping 23.9% sales gain, the store reported that much of that strength came from sales of marked down items. In fact, Saks management estimates that if the store had not instituted promotional price cuts, April’s sales would have increased by just high-single digits. The same factor propped up JC Penney’s results minimizing the decline to just down 1.7% on the month.
The teen retailers saw a similar boost from pent-up demand.
So--a word of caution: this is not a comeback. Today’s results are like a slightly lower fever on a sick patient. The risk factors are all still there, the illness is still in the symptom but the consumer is showing signs of life. Though for today, at least, retailers can exhale a sigh of relief.
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