Tags: June | Retail | Sales

June Retail Sales Seen Rising, Masking Weakness

Wednesday, 07 Jul 2010 05:38 PM

 

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U.S. retail sales are expected to have risen in June due to warm weather and a late Memorial Day, but the gains may be just a temporary reprieve in an uncertain economy.

Retail chains from Target to J.C. Penney and Abercrombie & Fitch will report sales at stores open at least year — a closely watched industry gauge known as same-store sales — on Wednesday and Thursday.

Analysts are expecting same-store sales to have risen 3.2 percent in June, compared with a drop of 4.9 percent a year before, according to revised Thomson Reuters data.

Demand for food and related products during the Memorial Day weekend late in May, which fell in the June reporting period this year for many chains, should have helped grocers and mass merchants who sell groceries, said Janet Hoffman, global managing director of Accenture's retail practice.

Department stores such as Kohl's and Nordstrom are expected to post some of the largest sales gains, after suffering some of the biggest declines last year, according to Thomson Reuters.

A June increase would mark the 10th consecutive month of rising sales after a year of declines during the recession. But analysts note that retailers will face picky consumers and tougher comparisons in the back half of the year.

"They (June sales) are still going to tell or reinforce what everybody wants to be a positive story and in so doing mask underlying weakness in retail," said Bryan Eshelman, managing director of AlixPartners' retail practice.

"The fundamentals are just not adding up to a recovery," he said, referring to factors such as high unemployment. Eshelman said he does not have high expectations for this year's back-to-school or holiday shopping seasons.

Data released July 2 showed overall employment fell for the first time this year as 225,000 temporary census jobs ended, casting a shadow over the strength of the U.S. economic recovery. Consumer spending accounts for about two-thirds of U.S. economic growth.

"(The) consumer is active in the marketplace. They are just spending less on a per-item basis," said Hoffman.

On Tuesday, Goldman Sachs and Citigroup cut their price targets on several retailers, including big names like Macy's and Wal-Mart.

Citigroup analyst Deborah Weinswig said consumers are sobering up after a shopping binge in the first quarter.

"A challenging macro environment, lack of fashion, and difficult comparisons on the horizon will make this consumer hangover tough to kick," she wrote in a note to clients.

Industry shares as measured by the Standard & Poor's Retail index were down 0.9 percent on Tuesday, while the wider market was almost flat.

June is a middling month in terms of sales for retailers, according to National Retail Federation data. July is more important as it kicks off the back-to-school season, the second-biggest sales period of the year after Christmas.

"We are seeing an improvement, we are not seeing a shift from recovery to expansion at this point," said Michael Niemira, chief economist at the International Council of Shopping Centers.

Warm June weather across most of the United States should have spurred sales of summer clothes, footwear, outdoor goods and other items after a lackluster April and May, analysts said.

The trend bodes especially well for teen apparel chains like American Eagle Outfitters and Aeropostale as well as for more value-oriented retail players like TJX and Ross Stores.

"The first person the disposable income gets spent on in the family is children," said Accenture's Hoffman.

June also typically sees a lot of full-price selling as many retailers wait until July before offering major discounts to clear store shelves for back-to-school merchandise.

AlixPartners' Eshelman urges retailers to show more willingness to discount "fast and deep," if required, to drive traffic and make space for the new merchandise.

© 2014 Thomson/Reuters. All rights reserved.

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