US-Mexico border stores, eateries see hit from flu
LOS ANGELES, May 1 (Reuters) - Retailers and restaurants on the U.S.-Mexico border, already hurt by recession, now face a steeper drop in business as consumers stay home to avoid the flu, and could be hurt even more if the border is closed to Mexican traffic.
Ross Stores Inc (ROST.O), Dollar General Corp [DG.UL], Family Dollar Stores Inc (FDO.N) and Collective Brands Inc's (PSS.N) Payless shoe stores face the biggest potential sales hit if traffic falls and their stores are forced to close, Oppenheimer & Co retail analyst Robert Samuels wrote in a client note on Friday.
And the most at-risk restaurants include BJs Restaurants Inc (BJRI.O), California Pizza Kitchen Inc (CPKI.O), P.F. Chang's China Bistro Inc (PFCB.O), Red Robin Gourmet Burgers Inc (RRGB.O) and the Cheesecake Factory Inc (CAKE.O), Oppenheimer restaurant analyst Matt DiFrisco said.
The contagious H1N1 virus, which has elements of swine, avian and human viruses, has hit hardest in Mexico, which on Friday started a five-day shutdown of most offices and business to halt the spread of the flu that is believed to have already killed as many as 176 people. [ID:nN01275153]
A prolonged commercial slowdown would further batter retailers and restaurants, many of which already have taken a beating amid the worst economic downturn in decades.
Traffic to U.S. malls has been in a slump since last year and has been cited as a reason for slowing or shrinking sales by a host of companies. Next week, retailers post April same- store sales results, which measure sales at stores open at least a year and are a key gauge of performance.
"With nearly 300 schools across the (United States) closed due to swine flu ... and parents afraid to let their children hang out in public places, there is clearly a risk to the already battered retail sector," Samuels said.
Stephen Hoch, a professor of marketing at the Wharton School at the University of Pennsylvania, said that, while flu fears may not have "a huge effect" on individual stores, traffic to malls could go into an even deeper slump.
EXCUSES, EXCUSES
Some retailers might even cite flu as an excuse for poor performance in May sales.
"Given how often they take local weather in one place when they're a national retailer, to use that to say something about a decrease in same-store sales, I think it's a likely hypothesis that more than one will say something about swine flu," he said.
On the positive side, drugstore chains might benefit from a sudden spike in demand for disinfectants, he said.
"If you're a retailer and you cater to obsessive compulsive people, you're in great shape here," he said.
Oppenheimer's Samuels said there were early signs border cities in Arizona, California and Texas were already feeling the impact of shoppers scared away by the flu.
"Considering the border cities, we think value-oriented retailers are most at risk from losing the Mexican consumer who comes over the border to shop," Samuels said.
Restaurants in the border states of Texas, New Mexico, Arizona and Southern California are most vulnerable if diners hunker down at home. Mid-tier casual dining chains located in or near retail centers "bear the greatest risk of avoidance or for a pause in demand," DiFrisco said.
If products stop crossing the border into the United States, restaurants may need to replace Mexican suppliers of fruits and vegetables and quick-turn retail items, the analysts said.
Next week should bring more information on the impact. Retailers and fast-food giant McDonald's Corp (MCD.N) report April same-store sales on Thursday and Friday, respectively.
Earlier this week, Burger King Holdings Inc (BKC.N) said it expected double-digit sales declines at established restaurants in Mexico in May and June. (Additional reporting by Alexandria Sage; Editing by Edwin Chan and Andre Grenon)
