With economy so good, why are retail sales so bad?
By Isadore Barmash
Thursday August 31, 5:59 pm Eastern Time
NEW YORK, Aug 31 (Reuters) - What's wrong with retailing these days? Too many stores, too much merchandise sameness, too many financial types instead of merchants running retail companies and, especially, too many choices for consumers.
These are some of the reasons cited by industry experts for the decline of the nation's retail business at a time when the economy is still booming.
Many U.S. retailers Thursday reported weak same-store sales growth in August as back-to-school purchases of clothing failed to offset a spending slowdown that has dogged them all summer.
In groping to explain the anomaly between the retail sales slump and the strong economy, analysts say the perennial reasons for weakness seem to make even more sense today -- especially since there appear to be few other factors.
Blaming the boss, as some do, is another factor. In this case, it Is often the chairman, president or chief operating officer who runs the company's retail operations.
``Today's top retailers aren't known as good businessmen,'' asserted Bernard Zients, executive head of the former Gimbels New York stores, an eight-store department-store chain. ``That's because most came up through the ranks of the soft goods division, particularly apparel. They don't realise or recognise that, while apparel is a great traffic builder, its profits are not nearly as good as hard lines. Few of the top merchants are adept at that.''
Indeed, apparel profits have dipped in recent years due to heavy price competition, with vendors of apparel and other goods often using lower-priced clothing to lure shoppers.
``While we're in an exciting fashion cycle, most retailers don't know how to sustain it,'' said Abby Doneger, president of the Doneger Group, a New York-based merchandising consultancy. "The result is considerable merchandise similarity. Department stores, too, are all look-alikes, leaving the customer wondering where to shop.
``I think one of the reasons for this is that department stores are driven by financial experts, rather than merchants, who tend to look only at the bottom line rather than how to stimulate the customers.''
Major retailers have reported earnings declines and disappointing sales for the recent months. Gap Inc.(NYSE:GPS - news), operator of the nation's largest apparel chain, this week said that sales in stores at least a year old were down 16 percent from the year-ago month. This followed The Gap's announcement that its quarter earnings were down 6 percent.
Kmart Corp., (NYSE:KM - news) the big discounter, said its second-quarter profits fell under last year's and that it was cutting inventory, stores and jobs. Others with lower earnings included Federated Department Stores Inc., (NYSE:FD - news) Circuit City Stores (NYSE:CC - news) and May Department Stores Co.(NYSE:MAY - news)
Among the biggest retailers, only Wal-Mart Stores Inc. (NYSE:WMT - news) and Home Depot Inc.(NYSE:HD - news) had higher second-quarter profits.
``The Internet has been lopping off some sales from the brick-and-mortar stores,'' said Peter Solomon, chairman of the New York investment banking firm, Peter J. Solomon and Associates. ``But the real problem is that many of the old charges -- too much sameness of goods, too much retailing square feet, not enough innovation -- are now coming to pass and hurting.''
Solomon, a former director of Associated Dry Goods Corp. and of Stop & Shop, Inc., added: ``If retailers have the goods that the public wants, the consumer will find it. But she soon loses interest unless her curiosity is aroused. The answer is to stop opening so many stores and show some real creativeness.''
Then there is that old standby for explaining poor retail performance -- the weather, which has been especially tough for apparel retailers and has affected overall results for those selling both soft and hard goods.
``The spring season this year is one that many retailers would like to move past,'' Mark Friedman, apparel analyst at Merrill Lynch, said in an August report. ``The cooler-than- normal temperatures in the Northeast and Midwest cost retailers full-price sales as customers waited until warmer weather. By that point, most spring/summer merchandise is marked down as retailers are preparing for fall arrivals.''
Yet, it may not be entirely the fault of apparel or the weather. It could all come down the dearth of well-educated, young people entering the retail field.
``The business needs to attract the new graduates with BA's and MBA's,'' said Abby Doneger. ``Too many graduates are veering into the high-tech world, financial services and Wall Street. Retailing's pay, hours and slow advancement in the early years are keeping too many of them away.''
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FD
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22 1/4
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