Consumers Suck It In, Clobbering March Same-Store Sales

While few experts were expecting retailers' March results to be anything but gloomy, the sharp declines took many chains by surprise.

Wal-Mart, which has been beefing up its "value" marketing message, gained a bit--edging up 0.9%. But sales at most other stores posted steep drops, with mid-priced stores hit hardest. At Gap Inc., for example, sales plummeted 18%; at Kohl's, sales fell 15.5%; J.C. Penney, 12.3%, and at Dillard's, 10%. And while declines were less pronounced at high-end retailers, they also felt the pinch, with sales at Nordstrom falling 9% and sales at Saks declining 2.9%. Neiman Marcus managed a small gain, with sales increasing 0.4%.

"There has been a stark change in consumer sentiment," says Frank Badillo, senior economist at TNS Retail Forward, a Columbus, Ohio-based consulting firm. "And these numbers don't give us any reason to expect things will improve in the next few months."

TNS Retail Forward reports that in its index of some 40 retailers, March's results are down from a 2.7% sales-weighted composite reported last month and down from the 6.4% composite reported in March 2007. While an early Easter and colder-than-average temperatures doubtless played some role, the main issue continues to be that consumers aren't just being careful about spending less--they're adamant about it.

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In its most recent ShopperScape survey, Retail Forward finds that three times as many shoppers (40%) now say that they plan to spend "much less" or "somewhat less" compared with shoppers (13%) who plan to spend "much more" or "somewhat more" than last year. Last month, the ratio was just two-to-one.

Going forward, apparel will continue to be hit hard, with 36% of shoppers saying they plan to spend less this year updating their wardrobes--an increase of 10 percentage points compared with the prior month. Even teens are spending less: At American Eagle Outfitters, sales fell 12%; at Abercrombie & Fitch 10%; and at Hot Topic, 3.5%. Buckle continued to do well, with sales jumping 20.7%.

Badillo thinks the first signs of improvement will be at chains like Home Depot and Lowe's, which were the first to begin suffering as a result of the real-estate crunch. While 34% of those surveyed say they also plan to spend less on gardening and landscaping this year, pullbacks in that category are not as sharp as apparel. "It's also possible that lower interest rates could spark some refinancing, and stimulate home sales, which would help these stores," Badillo says.

And overall, he says, the right price will lure consumers out of hiding. "In past recessions, we've learned that as long as consumers aren't worried about job security, it doesn't take much more than a good deal to get them to go back to the stores. They won't pass up a bargain." As a result, he expects "retailers will become even more promotional in the months ahead, and that shoppers will be all the more focused on discounts."

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