US: Operating costs driving retailers "into the red"
Accelerated selling, general and administrative (SG&A) spending is driving retailers into the red, one analyst has said, and could become a key theme over the near term.
Key to Wal-Mart's splurge was additional labour hours, higher healthcare costs and continued investment to enhance e-commerce, while Target just revealed longer store hours.
"These trends, combined with moderating topline trends due to constrained consumer spending will likely result in less leverage/deleverage," Janney Capital Markets analyst David Strasser said.
"This coupled with a weak consumer could drive earnings shortfalls as we head into the back half of 2014 and 2015."
When Target and Wal-Mart are raising spending, and online retailer Amazon continues its aggressive pace of spending at the expense of profitability, Strasser said "the rest of retail is going to react, or see it impact their top line".
The shift will also likely pressure vendors as well, he believes, with suppliers set to spend in the form of labour hours, or incremental help with direct shipping from retailers online.
"This inevitably will drive new questions about the right levels of profitability at retail, and likely force store closures and incremental consolidation as this industry continues to grapple with the need for elevated cost structures and profitability thresholds as the leading e-commerce player continues to push profitless prosperity."
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