Dismal Consumer Confidence Undermines 'Immunity' of Luxury Retail, Says
Veteran Retail Analyst
-June retail sales reveal a rattled consumer obsessed with price
AGOURA HILLS, Calif., July 17 /PRNewswire/ -- Luxury retailers' immunity
to the economic slump has been an article of faith on Wall Street, but that
faith was shaken this month by pallid sales reports from several upscale
chains. The erosion of this last bastion of certitude speaks volumes about
consumer confidence in the United States, says Stevan Buxbaum, executive vice
president of Agoura Hills, Calif.-based Buxbaum Group.
"The only thing we can count on is, we can't count on anything," Buxbaum
observes. "Uncertainty is the watchword of the day."
And both Wall Street and Main Street abhor uncertainty, he notes.
"Consumers are going to be extremely careful with their purchases," says the
veteran retail consultant and analyst. "They want name brands or quality
merchandise at a value price, and so chains that can offer them this --
examples include Target, Kohl's, TJX Cos., Aeropostale and Ross Dress For Less
-- will be clear winners moving forward."
Retail sales reports for June underscored these trends. Even with economic
stimulus checks worth a total of $50 billion in their pockets, shoppers opted
not to splurge on luxury goods, but instead picked up low-cost staples at
discount and warehouse club chains, Buxbaum says. "Same-store sales at
Wal-Mart were up 6.1%, Costco's rose 9% and BJ's Wholesale posted a 16.5%
increase. Although each benefited to some extent from rising gasoline prices
at their fuel center operations, their stores alone still enjoyed healthy
gains," he notes. "Meanwhile, at the luxury end of the spectrum, Neiman
Marcus, whose customer has long been considered too wealthy to be affected by
a slump, was among the companies posting a same-store sales decline, with its
results dipping 2.4%."
Fueled by high gas prices and unsettling headlines about bank defaults,
home foreclosures and the like, these economic jitters also will shape the
important, back-to-school selling cycle over the rest of the summer, Buxbaum
adds. Unlike certain department store chains which sell assortments by a
multiplicity of independent brands, chains like Aeropostale and Target are
better able to control the cost of their inventory as they are vertically
integrated and control their own brands. That means they will be able to woo
bargain-hunting parents by offering better deals on name-brand merchandise, he
says. Indeed, Aeropostale, which sells popular clothing for teens at lower
prices than its competitors, saw same-store sales rise by 12% in June, he
notes. The New York-based chain also raised its second-quarter sales
projections, citing successful promotions.
Tighter inventories also will help chains like Target and Aeropostale
avoid painful markdowns, Buxbaum contends. "Retailers are going to have to be
more discerning with their styles and offer narrower assortments. Instead of
six colors, that might mean four colors," he says. "Inventory control is
absolutely critical."
The imperative to keep inventories and costs at a minimum also will
translate into increased pressure on manufacturers, Buxbaum adds. "Giving the
retailer the opportunity to demand an additional, upfront markdown because you
were late with a shipment is not a position you want to be in right now as a
manufacturer," he says. "It is going to be critical for the wholesalers to be
absolutely on-time with their deliveries. Otherwise, they will get punished."
Chains in markets where Port Washington, N.Y.-based Steve & Barry's
operates likely will face even stiffer competition during the back-to-school
selling season, Buxbaum notes. Steve & Barry's, which operates 276 stores in
39 states, filed for Chapter 11 bankruptcy earlier this month and could start
liquidating inventories by the beginning of August. "It is quite possible
Steve & Barry's will be in liquidation for the entire back-to-school season,"
Buxbaum says. "That will no doubt attract a lot of shoppers, because those
deals will be hard to beat."
Meanwhile, the luxury retailers that have long been considered
beneficiaries of the bifurcated U.S. economy now face the prospect of
ever-more-sluggish sales. "People need to start paying attention to the luxury
sector," Buxbaum advises. "We're starting to see some cracks in that armor in
the United States. Wealthy shoppers have stock portfolios that are going down,
and they're being inundated with the same unsettling economic news as everyone
else. These doldrums are starting to affect everybody."
About Buxbaum Group
Buxbaum Group has built its reputation for over 30 years as one of the
largest liquidators and appraisers of retail and wholesale inventories across
North America. While continuing to operate in those areas, the company has
shifted its primary focus in recent years to turnaround investing.
SOURCE Buxbaum Group
Stevan Buxbaum of Buxbaum Group, +1-612-363-6517; or Lisa Kreda, or Bill
Parness, +1-732-290-0121, parnespr@optonline.net, both of Parness & Associates
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