Chain-store sales benefited from a number of one-time factors in July, but the rebound for retailers may well indicate better times ahead.
That's the assessment of a number of analysts who pored over the sales figures that dozens of retailers reported this week. Unlike previous months this year, when many or most chain stores posted disappointing or declining sales, the majority of stores followed by Instinet's Redbook report posted gains in same-store sales in July.
The upturn was due to a number of factors, including the recent tax cuts, better weather, widespread discounts and easy comparisons with last year, analysts say. But even setting those factors aside, things seem to be improving for chain stores, they say.
"Retail growth is slowly building up steam," said Craig Johnson, president of retail consulting firm Customer Growth Partners. "We're in the middle of a long, 'pick-yourself-up-from-the-bootstraps' recovery."
Such a recovery has been a long time coming. Consumer spending grew at a disappointingly slow rate last holiday season. That slowdown in spending continued into the first quarter, when many retailers warned that they would not meet their initial earnings estimates or analysts' projections.
Following slow spring sales, a number of chain stores, including
, entered the second quarter with swollen inventory levels. Such inventory levels weren't helped much by cool June weather, which put the damper on some sales that month.
But the widespread discounting that retailers used to clear that inventory was among the factors that helped jump-start July sales, analysts say. Meanwhile, better weather in July helped apparel stores move summer clothes, they say.
Weather had been among the factors that has kept retail sales in check throughout the year. Snowstorms in February, for instance, shut down many retail stores throughout the country and helped dampen sales that month. In the meantime, cool weather throughout the spring has made it difficult for retailers to push warm-weather clothes.
"Finally, the weather got warm," noted Kurt Barnard, president of Retail Forecasting, a consulting firm. "Retailers moved merchandise off their shelves when they needed to."
Other factors also helped chain stores in July. Tax cuts passed earlier this year started to take effect last month. Employers changed their withholding rates, meaning extra cash went into consumers' pockets.
Meanwhile, the first installment of the child tax credit rebate checks went out in July.
This "government intervention" into the economy helped to buoy it and boost retail sales, said Richard Hastings, a retail analyst at credit rating firm Bernard Sands.
"If it were not for the government intervention, you wouldn't see as good of a performance," Hastings said.
Retailers also benefited from relatively easy comparisons with previous years. Hastings, for instance, monitors the same-store sales figures released by retailers who sell apparel, including not only clothing stores such as
, but department and discount store chains such as
Among those retailers, same-store sales, which compare results at outlets open for more than one year, increased 2.6% on average in July. In contrast, comparable-store sales among those apparel-related retailers fell 0.8% in July last year and 1% in July 2001.
Similarly, Bank of Tokyo-Mitsubishi monitors the same-store sales results of some 77 different retailers. Among those, the average gain in July was 4.3%, said Michael Niemira, a vice president with the company and a retail analyst. That compares to July last year, when same-store sales increased 2.6% on average at those stores, and July 2001, when those stores posted an average 3.4% gain.
"This month there were easy comps for the industry," Niemira said. But he added, July sales were "better than we expected."
The key question, of course, is whether retailers will be able to duplicate their July performance going forward. Many analysts expect they can.
Although sales in July were helped by a number of one-time factors, the underlying economy does appear to be improving and will likely carry retail sales up with it, analysts say. The unemployment rate appears to be stabilizing, productivity is up and the tax cuts mean that consumers will continue to see more money in their pockets for the rest of the year, they say.
"July was one of the best months I've seen," said Hastings. "We could be on the verge of better performance for nondurable, discretionary spending -- the stuff that's sold in chain stores."
Unemployment Still a Worry
But even Hastings acknowledged that the situation is still somewhat "shaky." Any number of things could throw off a sustained recovery in chain-store sales, Hastings and others say, including another terrorist attack or increasing interest rates. Taking advantage of lower interest rates, many homeowners have refinanced their mortgages, helping to fuel consumer spending in recent years.
The biggest question for Barnard is the job situation, which he says is continuing to weigh down consumer spending.
"We're still dealing with a serious problem: unemployment. How that will play out remains to be seen," Barnard said. "I'm a little concerned about what's going to happen going forward."
But even Barnard expects retail sales growth this holiday season -- the most important period of the year for retailers -- to be better than last year.
Unemployment, interest rates and other factors are likely to weigh on chain-store sales, said Johnson. But while retailers shouldn't expect the heady growth in the late 1990s, they can expect respectable growth for the rest of this year, he said.
"Things are starting to come back," Johnson said. "They are healthier than they used to be."