Consumer Nation

The Long, Slow Slog to Retail Recovery


The latest batch of retail sales reportsunderscore that economic recovery doesn't happen overnight.

Man shopping for clothes
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The majority of the retailers reporting results Thursday posted monthly same-store sales that were lower than analysts were expecting. (For a table showing the complete retail sales results, click here.)

Sales at stores open at least a year rose 0.5 percent in April, well short of the Wall Street estimates of a 1.7 percent increase. Nearly 70 percent of the 28 retailers tracked by Thomson Reuters fell short of estimates, with the biggest misses seen among apparel retailers like Gap and teen chains like Abercrombie and Fitch.

Still, despite these disappointments, the results marked the eighth consecutive month that retailers logged same-store sales increases.

But put this in perspective: Retailers would have to post 13 months of double-digit same-store sales gains in order to get back to the level of sales that they reported at the industry's height in 2008, according to Matt Katz, global head of the retail practice at AlixPartners.

Katz points out that due to the shift in the Easter holiday, it may be better to look at the retail sales results on a quarterly basis rather than on a monthly one.

"If you were to use a two-month stack, the numbers would be more favorable," Katz said. That said, he suspects it will be a year of "fits and starts" for the retail sector.

"The market remains fragile and consumers remain cautious," he said.

RBC Consumer Confidence Survey

Investors have been trying to gauge where consumers are in the path to economic recovery, and results like these raise doubts about the recent traction retailers were gaining in the past few months.

But Katz said he's not surprised. He does not expect consumer spending to remain at its recent pace because savings rates have to increase. He expects consumers will continue to be cautious with their spending, buying items closer to when they are needed and looking for items that offer the best value.

That sentiment was echoed in some of the results that came out of a consumer survey conducted by RBC Capital Markets. That survey showed, among other things that consumers are beginning to shed their anxiety about the economy. But despite their growing optimism, their actions are showing continued reserve.

For example, the majority of consumers said planning to forgo expensive vacations this summer. Some 63 percent of those surveyed said they would stay at home on "stay-cation" or drive somewhere for a vacation (59 percent).

"The economy is getting better—slowly, but surely—but you're not seeing people running to their banks to take out huge amounts of loans to buy everything and anything," said Marc Harris, co-head of Global Research at RBC Capital Markets. "Money isn't flowing out of their pockets. It's still a tough time for a lot of people."

But Joseph Feldman at Telsey Advisory Group said he suspects a closer look at the retail sales reports reveals that consumers are starting to nibbleon more discretionary items such as home goods.

Feldman cited Target as an example. Although Target reported same-store sales fell 5.9 percent from a year ago, which was much steeper than the 2.3 percent decline analysts were expecting, there were signs descretionary sales were up.

And for investors, there is another important thing to note. Although sales fell short, Target reiterated its earnings forecast.

Another thing to remember is: The consumer isn't a unified being.

High-end consumers may be feeling more comfortable than others. Wealthier individuals may have seen their investments come back from the depths of the market's decline, and the value of their real estate may be stabilizing.

These individuals weren't spending before, but now may be ready to refresh their wardrobes.

Patrick Dunkerley, the lead portfolio manager at the Scout Mid-Cap Fund, said the low-interest rate environment should be good for the luxury retail environment.

"People should be kicking the tires stocks like on Coach, Tiffany and Macy's to look for opportunities — and other purveyors of luxury goods," Dunkerley said.

Meanwhile, Katz expects even high-end consumers to be more picky than they were in the past, noting that it is not uncommon to still see Mercedes and BMWs parked in the Walmartor Target parking lot.

"Consumers are more exacting and pinpointing the products that they buy," he said. "They are more informed."

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