fashion-features
fashion-features

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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In the broadline sector, Citigroup’s Weinswig, in a research note, said companies are still too bullish while factoring in a recovery in the second half of this year. "Although ‘easy’ year-over-year sales comparisons exist for the broadline retailers in the back half of 2003, an ‘easy comp’ does not necessarily translate into same-store sales strength," she said.

Weinswig also noted broadline retail stocks have thus far in 2003 outperformed the market, though the uptick was experienced primarily among high-quality names with higher market capitalizations, such as Wal-Mart, Target Corp. and Kohl’s Corp.

On the flip side, department stores continue to face longer-term obstacles and continue to be in a state of secular decline as the discounters pick up apparel market share.

Price deflation continues to be one of the department stores’ highest hurdles. "Deflation will have the greatest negative impact on the department stores, as the discounters’ superior sourcing capabilities result in the sourcing of higher-quality product at lower prices and continue to increase competition for the moderate customer," said Weinswig.

The Consumer Price Index for apparel has trended down for several years and declined 3.5 percent year-over-year as of March, she noted. "We do not expect apparel deflation to abate, especially as China’s accession to the World Trade Organization approaches in 2005 and China’s share of U.S. apparel imports continues to expand," noted the analyst.
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