US retail sales weather the storms in August
Apparel stores were among those hurt most by Hurricane Irene
US retailers weathered a number of storm fronts in August, with a solid start to the back-to-school shopping season helping to mask the impact of higher prices, growing concerns about the economy, and a hurricane that battered the East Coast.
Indeed, instead of derailing August sales, easy comparisons with last year contributed to a 4.9% rise in sales at stores open more than a year - a key gauge of retail demand - according to figures from Kantar Retail.
But the results held steady with July - suggesting that "shoppers are moving to curb their spending," says Frank Badillo, Kantar Retail's senior economist. He adds: "Although it's hard to see amid the impact of the hurricane and unavoidable back-to-school spending."
While it's difficult to gauge the full hit of Hurricane Irene, Michael Niemira, chief economist for the International Council of Shopping Centers (ICSC) suggests it slowed industry-wide August sales by 0.5% to 1%. The damage was skewed towards the Eastern seaboard.
The ICSC sales index for August shows US chain store sales rose by 4.6% compared with the same month in the previous year, and also puts this pace on par with July's performance.
What's more, apparel and department store retailers were among those hurt most by the storms, losing sales as stores closed and shoppers stayed home. This contrasts with some mass retailers, who saw spending rise as shoppers prepared in advance of the storm.
At department store retailer Macy's Inc, more than 100 shops were closed for all or part of Saturday (27 August) because of the hurricane. Chairman and CEO Terry Lundgren said August same-store sales would have been 1.5 percentage points higher if it was not for the store closings and reduced customer traffic.
But he added: "We expect the hurricane's effect on sales will be substantially offset as we move through September and the third quarter."
Saks Incorporated, which operates the Saks Fifth Avenue and Saks Off 5th stores, also estimated Hurricane Irene negatively dragged results down by around 150 basis points. But value-priced fashion retailer The Cato Corporation said the storm "had minimal negative impact on sales for the month."
August sales a mixed bag
Overall, the August sales results were a mixed bag. Among the winners were Saks Inc, Nordstrom Inc and Macy's Inc at one end of the spectrum, and discounter Target Corp at the other. Victoria's Secret parent Limited Brands, off-price retailer Ross Stores, and teen-apparel retailer Buckle Inc also saw increases.
Indeed, as Craig Johnson, president of Customer Growth Partners, told just-style earlier in the week: "People who are already having a good August, will still have a good August. And people who were having lousy Augusts, will still have a lousy August, although the latter may use Irene as an excuse for their poor performance."
Hitting the US in the last, and weakest, weekend of the month, the hurricane may help to boost next month's results by shifting some sales that would have taken place in the last few days of August into September.
Likewise, while the back-to-school season tends to peak in August, some spending in apparel can be pushed back into September as parents delay purchasing fall and winter clothing until cooler weather conditions set in.
That said, analyst Edward Yruma at KeyBanc Capital Markets warns there is likely to be some negative impact of apparel demand shifting to later weekends.
"First, with the likelihood of available dollars shifting to items like gasoline, food, miscellaneous supplies and potentially home repair, there is a strong likelihood of some demand destruction," he says.
And second, "Labor Day weekend is generally a promotional weekend. Sales that move from this past weekend to Labor Day weekend are likely to be done at lower margin."
Alongside this highly promotional environment, cost pressures will also reach a peak sometime over the next quarter. And, with inventory levels across the sector growing faster than sales, some analysts fear this will take its toll on retailers' upcoming margins.
Companies: Saks Incorporated, Macy’s Inc, Cato Corporation, Nordstrom Inc, Target Corporation, Victoria’s Secret, Limited Brands, Ross Stores Inc, Buckle Inc, JC Penney Company Inc, Kohl’s Corporation, Gap Inc
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