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Tue, May 13, 2008 - Page 10 News List

US retail industry fears biggest profit decline since 1999


After slashing inventory and cutting expenses, the US retail industry is still bracing for the largest overall quarterly profit decline in at least nine years when merchants report their first-quarter earnings this week.

Faced with one of the worst consumer spending climates in almost two decades, stores are going to have to find clever ways to attract increasingly thrifty shoppers contending with higher gas and food bills and a slumping housing market.

Wal-Mart Stores Inc launched a new online feature Friday that offers tips from financial expert Ellie Kay on how consumers can stretch their budgets, even beyond the store. Rival Target Corp aims to add some sizzle to an inexpensive clothing collection by designer Rogan Gregory by selling it first at upscale Barneys New York before shipping it to its own shops for a limited period.

“What smart stores are doing is creating a new store experience — both online and off — so you are not just a merchandise retailer but an experience retailer,” said Craig Johnson, president of consultancy Customer Growth Partners. “It’s all about what you can do to set yourself apart.”

Retailers reported better-than expected sales at established stores last month, but that did not mean that shoppers have been in the mood to splurge. Business was boosted by heavy discounting and a quirk in the calendar that meant an extra shopping day compared with the year-ago period.

The strain is expected to surface in the industry’s first-quarter earnings, which are expected to show an overall 14.9 percent decline, said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Massachusetts. He said that would be the biggest year-over-year quarterly decline since at least 1999, when he started tracking the data.

That outlook compared with a projection in January for 5.3 percent profit growth.

Still, the earnings picture would be worse if retailers had not been prudent about cutting costs and scaling back inventory, Perkins said.

Analysts had feared that increased discounting across the industry would lead more retailers to lower their earnings outlooks, but that didn’t happen. In fact, Kohl’s Corp and teen retailer Aeropostale Inc were among a handful of retailers that raised their earnings forecasts based on better-than-expected sales.

But while plenty of stores, from grocery chains to discounters, are offering enticements to try to grab a share of the US$107 billion in tax rebate checks being distributed to 130 million households, analysts expect that any lift will be modest and temporary.

“I don’t see any fundamental changes that are going to loosen up the wallet for consumers,” said Michael Appel, a managing director of Quest Turnaround Advisors. He said that stores are going to have to keep discounting and also come up with “exciting merchandise.”

Wal-Mart, the world’s largest retailer, reported a better-than-expected sales gain for last month, but said that the “economy continues to get tougher” and customers are increasingly unable to stretch their dollars to the next payday.

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