Some stores finding deep discounts on key items not attracting shoppers
Wednesday, August 18, 2010
NEW YORK -- A dollar for a 40-ounce bottle of ketchup? Yawn. Four bucks for a 12-pack of Coke? No sale.
Even deep discounts on everyday items don't seem to be enough to get Walmart shoppers to bite these days, and other chains are worried Americans won't be in the mood to spend in the months ahead, which are critical for those companies.
On Tuesday, quarterly financial results from retailers including Home Depot and Abercrombie & Fitch showed that profits are rising because retailers are cutting costs and keeping their inventories lean.
But with the economy slowing once again and consumer confidence falling, they expect less out of the rest of the year, and they already have to push harder to get shoppers to buy.
Walmart hopes basics like underwear and socks will bring in financially strapped shoppers. It's also stocking smaller packages for the days leading up to when customers receive their government assistance checks, and need to stretch their last few dollars.
Teen clothes store Abercrombie & Fitch slashed prices on some of its jeans by 40 percent to get people to buy for the back-to-school season.
At Home Depot Inc., sales are being driven by small repair projects, not big renovations, and weak spending has caused it to cut revenue forecasts for the year.
At high-end Saks, where even wealthy customers are checking price tags, the chain is pushing shoes and handbags as a way to update customers' wardrobes without having to buy an entire outfit.
With unemployment stuck at almost 10 percent and credit still tight, wooing shoppers is going to be tough.
Wal-Mart Stores Inc.'s chief financial officer, Tom Schoewe, told journalists that its deep price cuts in May and June, including the cheap ketchup and soda, weren't enough to bring people in the door and get them to buy other things.
The cuts targeted 22 foods and other essentials at an average savings of 30 percent. The original price for the big bottle of ketchup was $2.42.
"If low-income shoppers are passing that up, that goes to show you how tapped-out they are," said Ken Perkins, president of research firm RetailMetrics.
One key measure of revenue dropped at Walmart for the fifth quarter in a row, dragged down by its U.S. namesake stores. Customers are having a hard time stretching their dollars to the next payday, and food-stamp use is still rising, the company said.
Middle-income shoppers are not faring much better. And stores can't even count on shoppers with jobs because of layoff fears. As for the affluent, they're holding up better, but wild stock-market swings have them a bit spooked as well.
Retail sales were improving earlier this year, helped in part by a rising stock market. But things have slowed since April, and during this critical back-to-school season, echoes of the recession still sound.
Executives at Walmart and other retailers say they expect back-to-school shoppers to wait and buy items closer to when they actually need them. That could force stores to discount beyond what's planned if they don't meet their sales goals in August.
Customers are also making purchases with cash or debit cards, afraid to rack up debt. Retailers also say shoppers are only coming out for deals. "Sales are lumpy," said Joe Feldman, managing director and senior research analyst at Telsey Advisory Group.
The tough economy has apparently given fashionistas an appetite for bargains, driving some to discounters such as TJ Maxx. Its parent company raised its full-year profit outlook on Tuesday.
TJX president and CEO Carol Meyrowitz said customer traffic "continued to increase significantly" during the quarter as more shoppers gave up shopping at high-priced retailers to seek designer brands at its stores.
But Walmart, with more than $400 billion in revenue, is the biggest corporate barometer of consumer spending and the overall economy, and the picture isn't pretty.
In May, Schoewe said customers were having a harder time stretching their dollars to the next payday. Schoewe said Tuesday that consumers are no worse off than they were early this year -- but no better off, either.
Walmart customers are also focusing on paying cash for their purchases. Credit card transactions now account for only 15 percent of spending at Walmart, said Bill Simon, who took over as president and CEO of the company's U.S. operations in June.
Walmart couldn't immediately offer a figure on what it was in the past, but Feldman estimates that credit transactions at retailers generally account for about 30 percent of spending. Even in a stronger economy, the figure for Walmart would be lower.