Retailers' July Sales: Discounters Strongest

by: Markham Lee

Here is a link to a WSJ listing of how various major retailers fared in July. A couple of highlights follow below:

Warehouse stores Costco (NASDAQ:COST) and BJ's (NYSE:BJ-OLD) both saw same store sales increase by 6% and 7% respectively, both appear to be benefitting from consumers buying bulk as a way to save money and I suspect Costco's recent resiliency is also due to having some of the most affluent customers in retail.

Something else that's interesting about Costco is the fact that you can pay only for your items in cash, with a debit card or with an Amex (80% of Amex's cards in force are charge cards), which seems to indicate that their customers are primarily financing their purchases (and Costco's sales growth) in cash. For now this is a strength, as it indicates that Costco's customers are more financially healthy then say retailers whose customers are financing every day items on credit, but it could turn into a liability down the road if their customers find themselves in a situation where they have to shop at other retailers so they can use their credit cards. Either way, it should be a strength over the medium to long-term because Costco's customers are buying cash instead of on credit, a situation which should result in earnings that are more resistant to changes in the consumer credit environment.

The luxury retail segment didn’t fare especially well last month, with Neiman Marcus (NMG), Nordstrom (NYSE:JWN) and Saks (NYSE:SKS) reporting YoY same store sales declines of -1.7%, -6.1% and -5.6%; at this point I would think that they're suffering from a combination of a "poseur shakeout" as the housing/credit powered "faux wealth effect" subsides, in addition to truly affluent customers spending less. As the poseurs are completely shaken from the tree over the next couple of months the sales declines should start to level off, and we'll be able to get a better view of by just how much affluent folks are pulling back on their spending.

The Clothing Retailer's segment generally showed YoY declines across the board with retailers such as Abercrombie (-7%), American Eagle (-7%), Hot Topic (-2.1%) and Zumiez (-1.4%) all showing declines, while Buckle (+20.9%) and Aeropostale (13%) bucked the trend by showing sharp YoY sales increases. Gauging the performance of clothing stores such as these is always difficult, as performance could be driven by economic issues just as much as it could be by brand perception, buyer's tastes, etc. For instance the Gap was struggling when things were going well for retail overall, so we can't exactly blame their current troubles on the economic downturn.

Overall what's likely happening (especially with retailers aimed at young people) is that shoppers are "picking their spots" and choosing the hottest retailers and/or retailers that provide the most choices, which seems to explain the success of Buckle and Aeropostale while others falter. Buckle in particular seems to be benefitting from the combination of choice and hipness because they sell many of the same brands as other retailers, and are probably benefitting from being a cooler place to buy Lucky Jeans then Nordstrom.

You can browse through the rest of the retailer's results here.


WSJ : "Real Time Economics: July Sales: How Retailers Fared" -- August 7, 2008.

Disclosure: At the time of publishing the author didn't own a position in any of the companies mentioned in this article.