Back-to-school season sale fails to cheer US retailers
Retailers in the US may be dreading the approach of the school year almost as much as kids, given a forecast for the worst back-to-school season in seven years.
By Bloomberg |
NEW YORK: Retailers in the US may be dreading the approach of the school year almost as much as kids, given a forecast for the worst back-to-school season in seven years. Even with projections for almost no growth, stores need to raise prices, says Burt Flickinger, managing director of Strategic Resource Group, a New York retail consulting firm. Otherwise, higher costs for everything from cotton, to shipping, to labour in China will eat away at already narrow profit margins, he said.
���It���s an absolute balancing act,��� said Patricia Edwards, a portfolio manager with Seattle-based investment firm Wentworth Hauser and Violich. ���This is retail high-wire at its finest.���
Sellers and buyers are up against similar economic realities. Retailers like JC Penney in Plano, Texas, San Francisco-based Gymboree and Cincinnati-based Macy���s must cope with higher costs and a US dollar worth 9% less than a year ago. Their customers are confronting $4-a-gallon gasoline and food price increases amid a housing market decline, falling asset values and job losses.
Shoppers ���don���t have any more money in their pocket,��� said Joseph Gromek, chief executive officer at New York-based Warnaco Group, with brands that include Calvin Klein and Speedo. ���So to think that they���re going to pay more for the same is not going to happen. The consumer is not willing and candidly today not able to spend more on discretionary items.���
Kathi Nunziato has noticed the price creep. As she shopped at a JC Penney���s in Paramus, New Jersey, the mother of a school-age boy and girl said clothes she bought in June were more expensive by the time she returned to the store in July. ���I would say $5 per item��� more expensive, she said. ���They���ve gone up, just in that short time.���
Back-to-school purchases from July through September, retailing���s second biggest season after Christmas, this year may climb 1% to $38.5 billion, according to the International Council of Shopping Centres in New York. That would be the slowest growth since 2001, the group said.
Even with the threat to volume, some retailers are trying to increase prices 8%-9% on certain items, said Flickinger. For instance, Warnaco said it has raised prices on its Calvin Klein jeans because it is a premium brand.
Stores are hoping that new merchandise, already priced higher, and well-promoted discounts will mask the inflated costs, Flickinger said. ���It���s a risky strategy, because people who are already buying less at full-price will have even more sticker shock and be less inclined,��� Flickinger said in a telephone interview. ���This is simply a matter of survival.���
One of the biggest contributors is inflation in China, where a quarter of all the clothes sold in the US are made. China���s producer price index, a measure of inflation, climbed 8.8% in June. In May, China���s PPI rose 8.2%. That in turn helped push US costs on goods from China up 4.8% in June, the biggest year-over-year gain since the Labour Department started tracking the data in 2003.
Footwear, one of the purchases parents can���t easily avoid each year, has felt the squeeze. Eighty-four per cent of shoes sold in the US are made in China. ���We���ll continue to look at sourcing some of our products from other countries like Indonesia and Vietnam,��� said Ron Fromm, the CEO of Brown Shoe, the St Louis-based maker of Buster Brown and Dr Scholl���s footwear. ���But they could never build to the volume to offset the main production capability in China.���
Companies that have announced price increases include Collective Brands, the Topeka, Kansas-based owner of the Payless ShoeSource chain; Los Angeles-based Rebels Footwear.
���It���s an absolute balancing act,��� said Patricia Edwards, a portfolio manager with Seattle-based investment firm Wentworth Hauser and Violich. ���This is retail high-wire at its finest.���
Sellers and buyers are up against similar economic realities. Retailers like JC Penney in Plano, Texas, San Francisco-based Gymboree and Cincinnati-based Macy���s must cope with higher costs and a US dollar worth 9% less than a year ago. Their customers are confronting $4-a-gallon gasoline and food price increases amid a housing market decline, falling asset values and job losses.
Shoppers ���don���t have any more money in their pocket,��� said Joseph Gromek, chief executive officer at New York-based Warnaco Group, with brands that include Calvin Klein and Speedo. ���So to think that they���re going to pay more for the same is not going to happen. The consumer is not willing and candidly today not able to spend more on discretionary items.���
Kathi Nunziato has noticed the price creep. As she shopped at a JC Penney���s in Paramus, New Jersey, the mother of a school-age boy and girl said clothes she bought in June were more expensive by the time she returned to the store in July. ���I would say $5 per item��� more expensive, she said. ���They���ve gone up, just in that short time.���
Back-to-school purchases from July through September, retailing���s second biggest season after Christmas, this year may climb 1% to $38.5 billion, according to the International Council of Shopping Centres in New York. That would be the slowest growth since 2001, the group said.
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Almost 30% of US parents plan to spend less this year on back-to-school purchases, according to a survey of 1,000 adults by America���s Research Group conducted July 8 through 10. Last year, that figure was 16%, said Britt Beemer, chairman of the Charleston, South Carolina-based firm. This year, 45% of those who planned to cut back said they had less money.Even with the threat to volume, some retailers are trying to increase prices 8%-9% on certain items, said Flickinger. For instance, Warnaco said it has raised prices on its Calvin Klein jeans because it is a premium brand.
Stores are hoping that new merchandise, already priced higher, and well-promoted discounts will mask the inflated costs, Flickinger said. ���It���s a risky strategy, because people who are already buying less at full-price will have even more sticker shock and be less inclined,��� Flickinger said in a telephone interview. ���This is simply a matter of survival.���
One of the biggest contributors is inflation in China, where a quarter of all the clothes sold in the US are made. China���s producer price index, a measure of inflation, climbed 8.8% in June. In May, China���s PPI rose 8.2%. That in turn helped push US costs on goods from China up 4.8% in June, the biggest year-over-year gain since the Labour Department started tracking the data in 2003.
Footwear, one of the purchases parents can���t easily avoid each year, has felt the squeeze. Eighty-four per cent of shoes sold in the US are made in China. ���We���ll continue to look at sourcing some of our products from other countries like Indonesia and Vietnam,��� said Ron Fromm, the CEO of Brown Shoe, the St Louis-based maker of Buster Brown and Dr Scholl���s footwear. ���But they could never build to the volume to offset the main production capability in China.���
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Companies that have announced price increases include Collective Brands, the Topeka, Kansas-based owner of the Payless ShoeSource chain; Los Angeles-based Rebels Footwear.
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