Blog: Leonie BarrieBack-to-school on a budget

Leonie Barrie | 11 August 2008

A slow start to the back-to-school selling season – the second-biggest shopping period of the year after the December holidays – seems to be on the cards for many US retailers after tax-free sales events in a number of states, the last of the government’s tax rebate cheques, and even a spell of warm weather failed to boost July sales for many apparel stores.

A ‘mixed bag’ is perhaps the best description of last month’s sales reports – with the bad news that most consumers are still seeking out bargains or basics as they contend with rising gas and food prices, job uncertainty and the ongoing housing downturn.

Discounters, of course, continue to benefit from shoppers’ focus on necessities like food and fuel, with Wal-Mart posting a 3% gain in same-store sales. But even here there are clouds on the horizon, with the world’s largest retailer forecasting a sales slowdown in August as the stimulus cheques come to an end. Its main rival, Target Corp, saw its same-store sales slip 1.2%.

Mall-based apparel specialists such as Gap and Limited Brands continue to be disappointed as consumers shun non-essential items like clothes and shoes.

The main worry now is where the next boost in spending is going to come from, particularly when back-to-school shopping is completed in September. The likelihood is that consumers will be looking for bigger discounts to persuade them to part with their money. But deep markdowns will put extra pressure on gross margins in the second half of the year – which is something most retailers can ill afford.

Elsewhere the retail shake-out continues, with US department store chain Boscov's the latest to file for Chapter 11 bankruptcy protection. The retailer is to close ten underperforming stores as it tries to reorganise its business, but has secured $250m debtor-in-possession financing to support it through its restructuring.

But it’s good news for casual clothing chain Steve & Barry's, which filed for Chapter 11 bankruptcy protection early last month and has now has received an offer of $163m for some of its assets. This will serve as the opening bid in an auction process due to take place this month, and could be subject to higher proposals.

And it’s full-steam ahead for sporting goods giant Adidas which has lifted its full-year guidance after posting an 11.7% jump in second quarter profit to EUR116m (US$179.5m). Sales were up 5% to EUR2.52bn, driven by strong demand for its Adidas and TaylorMade-Adidas Golf brands. The firm, which is an official sportswear partner of the Beijing 2008 Olympic Games, also said it is on track to achieve sales of more than EUR1bn in China by 2010 – and that China will become its second-largest revenue earner after the US by the end of this year.

 


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