subject: June Retail Sales [print this page] Today's release of June retail sales from the major retail chains paints a gloomy picture of the month, very much in line with the weather throughout much of the country. Discretionary spending was particularly soft, with apparel chains such as Abercrombie & Fitch, American Eagle Outfitters, The Gap and Limited Brands all reporting greater same-store declines than they reported for May.
Much of the softness in June sales, in fact is being attributed to the very un-summer like weather, in addition to the continuing weakness in the economy, the impact of the current levels of employment, and eroding consumer confidence. But I suspect there's also something else going on here that's just as concerning.
Last January and February brought discount levels not seen before as retailers scrambled to clear out merchandise left over from the disastrous Christmas selling season. 50% off quickly gave way to 75% and 80% off, as retailers were forced to get whatever they could before early spring merchandise started arriving.
Since then, retailers of all sizes and shapes have been concerned about how they would be able to get customers to once again pay full retails, and when that would be. This spring the consumer proved to extremely cautious and value driven, looking for a deal at every turn. But June's weakness also suggests that as the summer clearance season in July and August drew closer, the consumer decided to wait out retailers, knowing the deep discounts were coming.
Even though inventory levels this spring have been reported to be 20% below last years levels, spring and summer merchandise has backed up and the deep discounting has already begun. Saks, Kohl's, Penney and Macy's have already gone to 50% and more on much of their seasonal stock.
For smaller and independent retailers, this only adds to the pressures they're under as they look to work through their own summer merchandise, but it also raises concerns about Back-to-School and the fourth quarter. Many accepted the sales and promotions they had to run during the spring with the hope that things would be different in the fall.
From this vantage point, the weakness in June sales indicates that the customer has now become too well trained, and that sales and margins are very likely to remain under the same pressures in the second half of the year as they were in the first half. Prudent smaller and independent retailers have already planned their fall seasons for just such a contingency, but it is still very discouraging, and concerning.
