Author: Helen Thomas

June 5, 2014

Warmer weather in May meant an uptick in store traffic for a few retailers, including Costco.  But the wholesale retailer’s same-store sales for the month – which increased 6%, with a 6% rise in U.S. sales and a 4% increase in international sales –  were better than analysts had expected and bolstered by higher fuel prices.

The company reported net sales of $8.78 billion for the month, an increase of 8% from $8.13 billion during the similar four-week period last year.

In the United States, same-store sales increased 6%.  Total company same-store sales also increased 6%.

For the 39 weeks ended June 1, the company reported net sales of $81.99 billion, an increase of 6% from $77.13 billion during the similar period last year.

Source: Retailing Today

June 6, 2014

The economy generated a gain of 217,000 jobs in May, compared with an average of nearly 200,000 per month over the past year.  Job growth may strengthen even further over the second half of the year as the economy picks up in pace.  Improving final demand is forcing business to add workers.  The underlying hiring trend, especially in professional services, is encouraging, with more good news expected through the summer and into the autumn months.  More jobs means more pay checks, lifting sentiment and resulting in still more consumer buying.  It will also induce businesses to invest more in equipment and human capital so that new workers can get the job done.  In sum, the strong trend is continuing for now, but could even speed up a little over the next few months.

Source: The Conference Board

June 4, 2014

WTI expects June 2014 to trend similar to last year and above normal for the U.S. as a whole.  Cooler and more normal temperatures can be expected from the Western Plains to the Rocky Mountain states.  Temperatures will be cooler than last year along the West Coast, but still above normal with slightly weaker demand for summer categories.  In the Northeast, temperatures will trend similar to last year while precipitation trends drier than a very wet June 2013, which will benefit store traffic and increase demand for outdoor categories.  Meanwhile, rainfall will be greater in the Central Plains compared to last year.  Warm and humid weather across the South will help drive incremental gains in swimwear, pool chemicals, beverages, air conditioners and summer apparel.  Sales will be flat to down slightly in the Northeast.  A cold front will sweep through the East late in the final week of June which will usher in a cooler and drier air mass for the Fourth of July weekend.  June 1 signaled the official start of the Atlantic Hurricane Season.  This season overall is forecast to be below average in terms of tropical activity, but should a storm develop in June, the highest risk area will be southern portions of the Gulf of Mexico and Caribbean.

Source: Retailing Today, Weather Trends International

June 2, 2014

Last week:  For the second week in a row, the bond market made the biggest headlines.  The Federal Reserve is tapering down its quantitative easing (buying fewer bonds) and the economy is catching up from a bad winter.  With sentiment up, strong job growth and some renewed strength in the ordering rate, one might think artificially low borrowing rates would be moving back toward normalcy (something reflecting a 2 percent inflation rate, and maybe a 2 percent risk factor).  Instead of moving up to about a 3 percent yield on a 10-year Treasury bond (on its way higher, assuming sustained economic growth), yields fell from above 2.7 percent to 2.45 percent this week.

Moreover, it’s not like stock prices are falling or volatility in stocks is sending money into the bond market.  Rather, the bond market is making a bet that the economy is more likely to lose steam and gain momentum.  The economic data point to gathering strength.  And that’s the view of professional economists (as much as 4 percent GDP growth this quarter, annualized), and that’s on track with a slow build in consumer sentiment as well.

Who is right?  Maybe the better question is what is the proper way to view all this.  German bond yields are almost a full point lower than U.S. bonds right now.  And Japanese bonds are even lower.  So one could argue that money is flowing away from other markets to chase the higher yield, sending prices of U.S. bonds up, which sends yields lower.  If one takes that view, it would follow that money flowing away from bonds elsewhere is also decreasing money there, keeping the euro much above its purchasing parity level.  This is not an argument justifying lowering yields but it does suggest lower yields are more reflective of what is not happening elsewhere around the globe than what is happening domestically.

Employment Situation, May (Bureau of Labor Statistics)

The economy opened up more than 250,000 new jobs in April.  The figure for May might come back to about 200,000, or about the trend growth of the past 12 months.  Still, this would be a reflection of an ecoonomy gaining strength.  And the paychecks from these new jobs, along with slowly rising sentiment, could fuel replacement buying.  That includes consumers replacing old worn furniture and appliances along with continued vehicle replacement.  And with final demand finally picking up, there very well could be more business investment – giving these workers the necessary tools to get the work done.  Money for investment is not the issue.  Indeed, neither is sentiment as surveys of attitudes of business executives through the first quarter reflect an uptick in optimism.

An uptick in consumer spending and business investment is a recipe for continued job growth of more than 200,000 per month for at least the next few months.  In other words, the economic cycle could well start spinning a little faster, just as The Conference Board Leading Economic Index has been signaling.  Look for more construction jobs, service sector jobs, perhaps even some manufacturing jobs.

Regionally, hiring has been the weakest in the service-dominated big population centers in the Northeast and Midwest.  If the labor market is turning more robust, it is likely that service-sector employment in these markets is starting to pick up.

Source: The Conference Board

The May PMI registered 55.4 percent, an increase of 0.5 percentage point from April’s reading of 54.9 percent, indicating expansion in manufacturing for the 12th consecutive month.  The New Orders Index registered 56.9 percent, an increase of 1.8 percentage points from the 55.1 percent reading in April, indicating growth in new orders for the 12th consecutive month.  The Production Index registered 61.0 percent, 5.3 percentage points above the April reading of 55.7 percent.  Employment grew for the 11th consecutive month, registering 52.8 percent, a decrease of 1.9 percentage points below April’s reading of 54.7 percent.  The Supplier Deliveries Index registered 53.2 percent, 2.7 percentage points below the April reading of 55.9 percent.  Comments from the panel reflect generally steady growth, but note some areas of concern regarding raw materials pricing and supply tightness and shortages.

Source: Institute for Supply Management 

May 29, 2014

Fred’s wants to be what it calls “the convenient small box store of choice” and to achieve that goal, it has embarked on a two-pronged strategy focused on general merchandise and pharmacy.

Neither business is new for Fred’s, an operator of 704 stores throughout the Southeast, but the need for a new approach to serving shoppers in the digital age was heightened after the company reported weak sales and profits for the first quarter ended May 3.  Sales declined to $498.3 million from $501.5 million and same store sales dropped 1.9% on top of a prior year decline of 1.3%.  The company’s first quarter profits of $6.1 million, or 17 cents a share, were roughly half the $11.4 million, or 31 cents a share, profit the company earned the prior year.

There were some legitimate reasons for the weakness, as have been cited by numerous other retailers, but Fred’s reasons went beyond the unusually cold weather and a tepid economy to include competitive promotions, issues related to the timing of tax credits and what it referred to as extraordinary inflationary pressures on generic drugs combined with third-party payers reluctant to increase reimbursement rates.

“Realizing that customers’ shopping habits are changing faster than ever, we recognize that we need to adapt to these changes and meet customers’ needs on their terms,” said Fred’s CEO Bruce Efird.  “Fred’s new strategy takes into consideration the ongoing emergence of internet shopping.  This trend continues to reduce trips to conventinal brick-and-mortar stores, but, at the same time, potentially expands the number of convenience, need-based shopping trips.  We will be marketing the diverse categories we carry compared with other small box competitors to emphasize convenience, using a new marketing and signage strategy.”

Rather than add e-commerce capabilities to its website, Efird said the front end of Fred’s stores will be re-merchandised with power displays and pallets, along with a faster checkout configuration, all focused on ease of shopping and designed to emphasize the advantages of shopping at Fred’s 15,000 sq. ft. stores.  The changes are meant to better position Fred’s to serve more of the need-based categories and provide customers with an easier and more convenient shopping experience.

“We are now engaged in a robust reworking of our current pharmacy distribution agreement, with benefits expected to begin in the second half of 2014 and with the full impact anticipated in 2015,” Efird said.  “We will be making the general merchandising changes over the balance of this year, which include cleaning out unproductive SKUs and exiting categories that do not align with Fred’s enlarged convenience model.  The costs of these branding, marketing and merchandising strategies will be finalized by the end of the second quarter.”

The company expects to fully implement a new marketing campaign by mid-July with further plans calling for the new front end, adjacencies and fixtures to be substantially completed early in the fourth quarter.

Source: Retailing Today

May 27, 2014

Target will test same-day delivery in three markets as the online shipping war among retailers continues to gain momentum.  Target will launch a $10 rush delivery pilot in June in the Minneapolis, Boston and Miami markets, offering guests the ability to order as late as 1:30 p.m. in the afternoon and receive a delivery of qualifying items between 6 p.m. and 9 p.m. the same day, the company stated in its recent quarterly call with analysts.

Later in the year, Target plans to rollout standard shipping from 136 stores in 38 markets across the country.  By leveraging the store network as fulfillment centers, it can offer faster, standard shipping – typically one to two days – and provide access to store only items not previously available from Target.com.  The retailer stated that it will continue to monitor results to determine further rollout plans.

The retailer also stated that it continues to see “encouraging results” from its recent rollout of in-store pickup of digital orders.  These orders make up about 10% of Target’s digital transactions and when guests pick up their items, more than 20% of the time, they take the opportunity to shop the store and spend much more than the average basket, the company stated.  In the first quarter, Target expanded the number of SKUs eligible for in-store pickup to more than 60,000, including some shelf stable grocery items.

Source: Retailing Today

May 29, 2014

Solid sales growth at Costco during the second quarter and a 6% same store sales increase at U.S. clubs did not translate into strong profits for the warehouse club operator whose earnings fell shy of analysts’ estimates.

Costco’s worldwide revenues for the 12 week period ended May 11 increased 7.1% to nearly $25.8 billion and consisted of product sales that increased 7.1% to slightly more than $25.2 billion and membership revenue which rose 5.6% to $561 million.  Total company same store sales increased 4% and consisted of a 5% U.S. comp increase and a 3% international increase.  Both figures were negatively affected by lower gasoline prices and foreign exchange.  U.S. comps increased 6% excluding the negative effects of gas prices and international comps increased 8% on a constant currency basis.

Costco saw its profits increase 3% to $473 million, or $1.07 a share, from $459 million, or $1.04 a share.  The consensus among analysts was that Costco would earn $1.09 a share.

Costco ended its second quarter with a total of 655 warehouses worldwide, including 464 locations in the United States and Puerto Rico, 87 in Canada, 33 in Mexico, 25 in the United Kingdom, 19 in Japan, 10 in Taiwan, 10 in Korea, six in Australia, and one in Spain.  The company plans to open as many as eight new warehouses during the second half of its fiscal year.

Source: Retailing Today

May 29, 2014

Production of apartments and condominiums showed positive growth in the first quarter of 2014, according to the latest Multifamily Production Index (MPI), released today by the National Association of Home Builders (NAHB).  The index increased three points to 53, which is the ninth consecutive quarter with a reading of 50 or above.

The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100.  The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse.

Th MPI provides a composite measure of three key elements of the multifamily housing market: construction of market-rate rental units, low-rent units and “for-sale” units, or condominiums.  In the first quarter of 2014, the MPI component tracking builder and developer perceptions of low-rent units increased one point to 48 and for-sale units jumped eight points to 54.  Meanwhile, the index tracking market-rate rental properties slipped one point to 59, but has remained consistently above 50 since the fourth quarter of 2010.

“Developer confidence in market-rate units has been pretty stable for quite some time,” said W. Dean Henry, CEO of Legacy Partners Residential in Foster City, California, and chairman of NAHB’s Multifamily Leadership Board.  “Now we’re really starting to see confidence in the condo market start to catch up – a segment that had been delayed in its recovery – along with the single-family market.”

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry’s perception of vacancies, dropped one point to 37.  With the MVI, lower numbers indicate fewer vacancies.  The MVI improved consistently through 2010 and has been at a fairly moderate level since 2011 after peaking at 70 in the second quarter of 2009.

“The MPI shows stable production of apartments and condos, which is what our forecast calls for,” said NAHB Chief Economist David Crowe.  “In 2014, we expect multifamily starts to grow about 6 percent over 2013, to about 326,000 units.”

The MPI and MVI have continued to perform well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.

For data tables on the MPI and MVI, visit www.nahb.org/mms.

Source: National Association of Home Builders 

May 27, 2014

Last week: The Conference Board Leading Economic Index continues to point toward more solid footing for the U.S. economy.  Investors remain skeptical.  After the drop in bond yields last week, yields moved very little this week.  Are consumers equally skeptical?  This week’s consumer confidence report will show whether consumers remain in a “wait and see” mode.  Of course, consumers pay more attention to changes in the labor market than the bond or stock market.  Next week, the latest news on job growth may live up to consumer expectations and help convince them that it is time to finally implement some long delayed replacement purchasing.

The Conference Board Consumer Confidence Index, May

The data point to an improving economic environment.  Are consumers buying it?  Confidence, especially consumer expectations, was higher in April than at the start of this year.  Did it move higher in May?

Personal Income and Outlays, April (Bureau of Economic Analysis)

Income growth has generally been in a range of about 0.2 to 0.3 percent.  Spending was even slower through March but might have improved in April, as the severe winter weather lets up.  The bigger issue is whether job growth and some rise in wages will be enough to move above that 0.2 to 0.3 percent range.

Question of the Week: Is the housing recovery running out of steam?

The housing recovery certainly ran into more than a simple speed bump.  Consider that sales of existing homes peaked in July of 2013.  But that’s not all.  Sales peaked in different parts of the country nearly simultaneously.  That’s not a typical pattern.  Moreover, the drop in sales ran counter to all computer models.  Clearly something happened to change the trend, and in an unusual manner.  Perhaps the rise in mortgage rates, as well as the run up in home prices resulted in a pull back.  Another factor may have been the slowing in sales of distressed homes – foreclosed homes put on the market.  A third factor had to do with the number of sales to those buying a home to rent out or renovate and resell (so-called flip sales).

Mortgage rates have actually retreated a little from the peak last year.  The supply of distressed homes has continued to dwindle, though the pace has slowed.  On the other hand, with job gains averaging almost 200,000 per month over the past 12 months, and expected to continue, if not accelerate a little, demand for homes could well start moving up.

One more factor affects sales of homes: getting mortgage approval.  This likely did not impact sales last year as lending conditions remained restrictive.  Many lenders were still dealing with nonperforming loans.  This problem has diminished to the point that some lenders have eased credit conditions.  In sum, fewer diminished sales, fewer flip sales, more sales to the newly employed, mortgage rates not moving up (at least for now), and eased lending conditions should all combine to allow home sales to start moving higher.  In turn, more demand would send more crews out to build more new homes.  So, no, the housing recovery is not running out of steam.  It did hit a speed bump.  But that speed bump is now in the rear view mirror.

Source: The Conference Board