Retailers plan gingerly for a sales slowdown

The stock market handed the 1987 Christmas season a lump of coal. After October, many store owners worried that Christmas shoppers would be scared off, but hoped they would ignore negative predictions about the economy. ``Our greatest fear was it would be self-fulfilling,'' says Orren Knauer, director of investor relations at Kmart Corporation, the huge discounter headquartered in Troy, Mich.

So retailers were relieved when December's sales figures came out, showing gains of between 4 and 8 percent for most of the big chains compared to December 1986.

Now these retailers, particularly in specialty apparel, are stepping gingerly into the new year. They're hanging onto cost-cutting strategies, hoping to prevent a repeat of last year's second-half slowdown, says Monroe Greenstein, an industry analyst at Bear, Stearns & Co.

Although K mart ``did not change its plans for Christmas one iota,'' Mr. Knauer says, ``we are being very cautious in planning for the spring season, because there is no compelling reason for people to go out and spend in the early year.''

Analysts point to several factors this season which they say indicate a slower, more competitive year ahead.

Except for the most exclusive stores, many retailers slashed prices on almost all lines to move their huge inventories before Christmas. While retailers say it's too soon to tell, analysts say this price cutting means actual profits will be relatively poor.

The unusual amount of promotion, price reduction, and time it took to get shoppers past the cash registers indicates reduced profits, analysts say.

Also, recent figures show a slowdown in auto sales, a sign that people are cutting back, says Richard Pyle at Piper, Jaffray & Hopwood Inc., a Minneapolis brokerage.

He suggests that we ``are not going to see people doing impulse buying anymore.'' This is why discounters fared much better than specialty or higher-priced department stores over the holidays, says Donald Trott, a retail analyst at Dean Witter Reynolds. ``Consumers are going more towards necessities and lower-priced items now.''

``Considering all the talk about recession, consumers showed resilience,'' says Gordon Jones, spokesman for Sears, Roebuck & Co., where December sales were 5 percent higher than the same month in 1986.

Among the discounters, the Wal-Mart Stores Inc., a 1,182-store general merchandise chain, reported the largest increase, with a total sales gain for December of 34 percent. The increase, however, is a more modest 12 percent when stores opened during 1987 are not included in the comparison. Likewise, Kmart had a 5.7 percent gain for comparable stores, and 7.7 percent increase from December '86 to December '87.

At the high-priced end, Dallas-based Neiman-Marcus was up 7.5 percent since December of 1986. Specialty apparel chains, however, were coming out of a difficult year and did not fare as well. The Limited, for example, a chain of more than 3,000 stores, showed a 2 percent drop in sales from December to December.

J.C. Penney, with an 8.6 percent gain, and other general merchandise stores that are heavily oriented toward specialty apparel, registered gains four or five percentage points below the major discounters.

Retailers generally said they were reassured by the overall sales figures. Kmart's Knauer says sales at the end of 1987 showed ``the consumer is driven by the real world and not by the stock market.''

Specialty retailers faced added problems of a boring lineup and a 10 percent price increase. ``Prices were considerably higher than last year,'' Knauer says, and ``people aren't going to go out and pay higher prices for things they already have in their closet.''

``They beat a new look to death ... this was one year too many,'' says Fred Wintzer, who follows apparel retailers at Alex. Brown & Sons Inc., in Baltimore.

But ``retailers always say when their business is bad it's the manufacturer's fault,'' contends Edward Weller, an analyst at Montgomery Securities in San Francisco. Instead, he says, poor planning, more than a tightening economy, contributed to their weak showing. Over the next few years, he says, ``retailers who can deliver sharp values will do well ... the consumer will be much more value oriented.''

Economists predicted that at the end of 1986, consumers, overburdened by debt, would spend cautiously for the first six months of last year. The economists and most retailers also expected spending to step up during the second half, but the reverse occurred. ``Somewhere out there, overconsumption catches up with them,'' says Mr. Trott at Dean Witter.

This year as well, economists expect consumers to start out with their fists closed, but to open them after six months in order to start spending their savings. Competition among stores is likely to remain fierce, and retailers have bought ``very, very conservatively, expecting business to slow during the first half of '88,'' says Mr. Greenstein at Bear Stearns.

Analysts generally predict year-to-year sales increases of about 6 percent next year, compared with 8 percent last year.

In many stores, last year's merchandise is still on the racks. Now, however, retailers are offering clothing for as much as 80 percent off the price of already marked-down items.

``The consumer is still willing to buy, but you have to induce him,'' Trott says.

Paradoxically, the extreme upper end of the market appears to have done very well, and without as much price slashing and promotion. A spokeswoman at Neiman-Marcus says the store relied on ``promotion of our regular-priced merchandise,'' rather than discounting to encourage buyers.

The customer base has not been severely affected, and if they have the money, they're going to spend it, Mr. Pyle at Piper Jaffray says.

You've read  of  free articles. Subscribe to continue.
QR Code to Retailers plan gingerly for a sales slowdown
Read this article in
QR Code to Subscription page
Start your subscription today