Retailers Cautious About Second Half as Sales, Traffic Slow

Recent economic indicators have pointed to a more confident consumer, but retailers aren't reaping the benefits just yet. In the last week, a slew of retailers, such as Kohl's, Target, Dick's Sporting Goods and Abercrombie & Fitch, have reported weak results and expressed caution concerning the second half, which includes the all-important back-to-school and holiday shopping periods. The only bright spot has been home improvement retailers including Home Depot and Lowe's, which both reported 10% sales increases. "We've seen a lot of retail weakness, but … consumers are spending more on hard goods, including home and TVs and cars, but less on apparel," said Mike Baker, an analyst with Deutsche Bank. Still, there are some inconsistencies, Mr. Baker added, noting the strong performance of TJX Companies, which operates T.J. Maxx. "If the value is there, consumers will also spend on clothing," he said. Retailers both in and out of the mall, including Walmart, Macy's and American Eagle Outfitters, reported declines in traffic. Meanwhile, Home Depot and Lowe's raised their forecasts for the year, noting that the housing recovery is fueling spending on remodels and home improvement projects. Government data also show consistent, if modest, growth in employment. Consumer confidence, which hit a six-year high in July, has declined somewhat this month. It's a puzzling trend. Retailers have cited higher gas prices, the 2% rise in Social Security taxes and rising mortgage rates as consumer concerns that are impacting sales. Pent-up demand for big-ticket items like cars, appliances and home improvements could also be tempering spending on apparel and other discretionary items. Already, Macy's, which saw sales fall 1% during the second quarter, has said it plans to ramp up marketing and promotions in the second half to attract wary customers. "Our fall plans now reflect increased marketing, as well as greater recognition that in today's environment value matters a great deal. So we are turning up the volume on that message for the remainder of 2013," said Karen Hoguet, Macy's CFO during a call with analysts. Michael Jeffries, chairman-CEO at Abercrombie & Fitch, also acknowledged the importance marketing would have in the coming months. The teen retailer reported traffic declines along with an 11% drop in U.S. same-store sales and a 33% fall in profits during the second quarter. "We're working on a number of marketing initiatives to do that, to build traffic," he said during a call with analysts. "Some online, some offline, but we are very, very dedicated to driving traffic." The National Retail Federation has predicted back-to-school and back-to-college spending will fall 13% to $72.5 billion this year from $83.8 billion in 2012. Marketers began promoting back-to-school deals even before July 4th, and consumers took advantage. According to the NRF, those early promotions paid off, as 52% of families with school-age children have already completed their shopping, up from 40% last year. "Given the historic level of early-bird shoppers we've seen this year, it is evident that many families still consider price and value when looking for their back-to-school and college needs," said Matthew Shay, NRF's President-CEO. "Shopping early and often has become a sign of the times as budget-conscious consumers aim to ease the brunt of large spending events."

Retailers Cautious About Second Half as Sales, Traffic Slow

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