Where’s the Bounce? Retail Still Sluggish Despite Iraq Success

Military victory in Iraq hasn’t yet brought shoppers into stores, but hopes are high that it will trigger the beginning of an economic recovery.

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After two weeks, Wal-Mart Stores Inc. said its U.S. comparable-store sales for April were tracking near the low end of its projections of a 5 to 7 percent rise, while Easter sales were only "OK." Federated Department Stores Inc. continued to expect a 2 to 3 percent April comp decrease.

J.C. Penney Co. Inc., which reported on the third week of its fiscal month, said sales in its department stores improved over the weekend, though April continued to trend below the planned low-single-digit comp drop.

Moody’s Lonski noted that, since many businesses limited capital spending while the war played itself out, retailers should watch to see if companies start hitting their checkbooks again, which could spur employment growth. The stock market, he noted, has been stabilizing, a trend that, if it continued, would also embolden corporate spending.

Also, consumer confidence, which is still down against the previous 12 months, picked up in early April, he said.

"We’re going to find that certain segments of retailing that are going to depend on air travel are probably going to suffer," noted Lonski, since Americans still feel nervous about flying with the threat of terrorist strikes remaining.

"Easter was disappointing," observed retail consultant Walter Loeb. "The whole spring season was disappointing. The stock market continues to upset people and reduce their spending; unemployment still looms in people’s minds."

Loeb, however, is looking for economic indicators to improve as gasoline prices drop and capital spending and hiring pick up later on: "There will be more trust in the future and the need to get out — people will want to get out and shop more."

William Blair & Co. analyst Ellen Schlossberg, noted, "At the end of the day, when we start seeing sales come out for April, we’ll find that aside from one key driver, which is weather, those retailers that post the strongest numbers will be those that have the most compelling merchandise, the most differentiated merchandise or those that are doing something dramatically different from last year that would impact year-over-year comps."

Gap Inc. is one company, she said, that could come out on top on the April sales register since it’s up against easier comparisons and has improved its merchandise at both its Gap and Old Navy divisions.
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