Holiday Retail Sales Trends and Shopping Center Executive Expectations Both Pointing in Same Direction -- Down
Harold Bordwin, managing director and co-group head of real estate services at KPMG Corporate Finance/Keen Consulting, stated in a conference call today that the well-documented drop in home equity levels, combined with rising job losses and a decline in credit card issuance has dried up consumers' liquidity and lowered their confidence in the economy.
From there, he said, starts the real trickle down effect to retail real estate: "If the consumer isn't buying, the retailer isn't selling. Then the retailer is contracting (including cutting back on new stores, closing stores, or going bankrupt) and perhaps even defaulting, decreasing cash flow to the landlords, which translates into landlord default in some cases, amongt both public REITs and private owners," said Bordwin.
The opinions of shopping center executives are in line with Bordwin's comments. In the its most recent Shopping Center Executive (SCE) Opinion Survey, the International Council of Shopping Centers (ICSC) revealed weakening business conditions for the 16th month in a row.
The SCE Business Barometer fell to 29.2% in November, a new record low. Executives' assessment of current business conditions increased from 29.5% in October to 30% in November, with executives reporting higher sales and shopper traffic (related to holiday shopping), but hefty declines in occupancy rates and rent spreads.
Shopping center executives are planning for their capital spending to be either lower (44.4%) or much lower (35.6%) in 2009. Not one respondent believes capital spending would be much higher in 2009, said ICSC.
Executives’ expectations for the next six months were dim. The SCE Expectations index dropped from 32.7% in October to 28.4% in November. Sharp monthly declines in rent spreads, customer traffic, and sales are predicted.
RETAIL INDUSTRY ECONOMIC INDICATORS
Consumer Confidence Recovers in November After Hitting Rock Bottom in October
Before plumbing the depths of the current environment, there was one bright spot to report: the Conference Board's Consumer Confidence Index improved to 44.9 in November, a significant improvement after plummeting to an all-time low of 38.8 in October. And while consumers' assessment of the present situation declined again in November, their expectations for the future improved markedly -- only 28.1% expect business conditions to worsen over the next six months.
Commenting on the latest findings, Lynn Franco, Director of The Conference Board's Consumer Research Center, said "Inflation expectations subsided considerably as a result of falling gas prices. But, consumers remain extremely pessimistic and the possibility that economic growth will improve in the first half of 2009 remains highly unlikely."
Retail Industry Employment Posts Largest Monthly Decline in Two Decades
In the last year, retail industry employment has fallen by a staggering 467,500 jobs. Putting the retail sector in perspective, the Conference Board said the U.S. economy has lost 1.9 million jobs so far and expects that number to reach 3 million by mid 2009.
In November, retail industry employment posted a 0.6% decline of 91,300 jobs as compared to October, according to the BLS. This negative monthly percentage change is the biggest the industry has experienced in this decade, by a widespread margin. The last time a monthly decline even close to as drastic was recorded was February 1991 (-0.58%) and April 1991 (-0.45%).
In November, the biggest retail employment declines were among auto dealerships (-24,000); clothing and accessories stores (-18,000); sporting goods, hobby, book, and music stores (-11,000); and furniture and home furnishing stores (-10,000).
Consumers Finally Seeing Relief in Goods, Gas and Energy Prices...But Have Yet to Respond by Spending More Money
On Nov. 19, in its Consumer Price Index report for October (a measure of inflation), the BLS said, "CPI decreased 1% in October following very little change in September and August. The October decline was the largest one month decrease since publication of changes began in February 1947."
The BLS said the energy index fell 8.6%, following a 1.9% decline in September and 3.1% decline in August. Significant deflation was also recorded in the transportation and apparel categories.
Consumers aren't yet seeing relief in their grocery carts, however. The food index was up .3% in October and is up 6.3% over last year.
High gas prices have challenged retailers this year, as consumers responded by consolidating shopping trips and tightening their spending budgets. The consolidated effect meant retailers had fewer opportunities to capture sales from cash-strapped shoppers.
Leading up to the recent drastic drop in gas prices, the gasoline index, part of CPI, declined 14.2% in October.
On Dec. 9, MasterCard Advisors said in a SpendingPulse report that gasoline demand was up last week, for the first time since April 2008. With average gasoline prices down to $1.78 per gallon last week (this compares to a high of $4.10 per gallon in July), Americans pumped an average of 9.3 million barrels of gas per day last week, which is up 0.3% from a year ago.
The price declines are beginning to shift consumers' driving behavior, said MasterCard.
However, the following retail sales statistics reveal that plummeting gas prices haven’t immediately fueled consumers to spend more at stores -- and likely won't until consumers become confident that this and other economic drivers will remain in their favor for the foreseeable future.
HOLIDAY RETAIL SALES / SHOPPER TRAFFIC
ICSC Reports Lowest November Sales on Record, Lowers Holiday Sales Forecast
As for retail sales, ICSC reported a 2.7% decline in comparable chain store sales for November, the weakest performance for the month in more than 35 years, said ICSC. Excluding Wal-Mart from the tally, ICSC said the result would have been -7.7%. Every retail segment posted a decline for the month, with department stores and apparel/specialty retailers seeing double-digit declines.
ICSC said Black Friday sales were strong, even record-breaking for some retailers, but despite this, the organization lowered its overall Holiday prediction (combining November and December) for sales to be flat to -1.0%; which includes an expected 1.5% gain for December. If the current trends hold, it would be the weakest holiday sales performance on record, said ICSC.
America's Research Group Says Black Friday Traffic Flat, Lowers Holiday Sales Prediction to -3.5%
On Dec. 3, C. Britt Beemer, CEO and founder of America’s Research Group (ARG), lowered his overall holiday retail sales prediction to -3.5%.
Reporting on results of a holiday shopping survey conducted Dec. 6 and 7 in cooperation with UBS, Beemer said, "The number of consumers saying they will spend less for Christmas gifts is at an all time high this year at 40.1% - nearly double last year (23.0%). Of those spending less, 63% said they're doing so because of job fears.”
To keep spending low, nearly two-thirds of consumers are forgoing spending on themselves, 70.2% said they're sticking within their budgets, and 88.1% said they took advantage of Black Friday "early bird" specials.
Beemer said Black Friday weekend shopper traffic was about the same. However, shoppers were visiting fewer stores than last year. "Store traffic could get lighter over the next two weekends as 20% of consumers have finished all their Christmas shopping. Of those consumers waiting until December 24 to finish shopping, 95.7% are looking for better/bigger bargains -- an all time high," said Beemer.
NRF Says Black Friday Weekend Traffic Up 17%, Average Spend Up 7.2%
"Though the holiday season is far from over, retailers across the country are breathing a collective sigh of relief after shoppers headed to stores and websites in droves over the weekend," said the NRF about Black Friday Weekend (Nov. 27 to Nov. 30).
According to a survey conducted by BIGresearch, there was a 17% increase in the number of shoppers visiting stores and websites over Black Friday weekend. Shoppers spent an average of $372.57 for the weekend, which is up 7.2% over 2007.
Unfortunately, NRF president and CEO Tracy Mullin, predicts this spending burst will be a phenomena and maintains the organization's meager 2.2% predicted increase in holiday season sales (which would be the slowest growth recorded in six years). "Pent-up demand on electronics and clothing, plus unparalleled bargains on this season’s hottest items helped drive shopping all weekend. Holiday sales are not expected to continue at this brisk pace," she said. In another sign that this surge won't keep up, Americans had already completed a higher percentage of their total holiday shopping at this point in the season as compared to last year.
ShopperTrak Says Black Friday Weekend Traffic Down 19% and Sales Up Only .9%
ShopperTrak reported results for Black Friday weekend that contrast significantly to NRF's results, as the service only tracks traffic and spending at brick & mortar stores. ShopperTrak estimates only a .9% increase in Black Friday weekend retail sales and a 19.3% drop in foot traffic, as compared to the previous year -- the latter is the largest drop off in Black Friday foot traffic ShopperTrak has ever recorded.
Bill Martin, Shopper Trak Co-Founder, explained that while shoppers spent furiously on Black Friday, shopping levels dropped off significantly the two days following, as "various economic pressures drove consumers back home to wait for that next big sale."
Consumers Favor Wal-Mart, Department Stores Gain Some Ground
Beemer said consumers are "flocking" to Wal-Mart, as 69.1% of consumers have shopped at Wal-Mart already this season, followed by Sears (23.3%), Target (19.8%), JC Penney (18.1%), and Best Buy (12.6%); the percentage of those shopping at JC Penney and Best Buy are down considerably in comparison to 2007.
In a Black Friday SpendingPulse report combining Friday and Saturday sales, MasterCard Advisors said that while luxury retailers recorded a 2.4% increase and specialty apparel retailers recorded a 1.6% increase, electronics retailers saw a 14.3% decline.
According to the NRF, discount stores saw the most Black Friday traffic, followed by traditional department, clothing, electronics, and online stores.
BRICK & MORTAR RETAILING LOSING GROUND AGAINST E-COMMERCE
Consumers are increasingly migrating from traditional brick-and-mortar shopping to online shopping, with a particular focus on price comparison.
MasterCard Advisors said e-commerce sales were up 11.8% for Black Friday weekend as compared to last year.
CyberMonday Sales Soar
"Cyber Monday" is the biggest day of the year for online retailers. On Dec. 4, comScore (NASDAQ : SCOR) reported that online retail sales on Cyber Monday increased 15% over last year. This was solely driven by a 22% increase in online shopper traffic, as the average dollars spent per buyer declined by 5% versus year ago.
“Because of the extremely attractive prices offered by a myriad of retailers, nearly two million more consumers purchased online this Cyber Monday compared to last. But, because of their reduced spending power, those who did buy were unable or unwilling to spend as much per person as we saw last year,” said comScore chairman Gian Fulgoni.
Brick & Mortar stores with strong e-commerce divisions benefit from the increase online shopping of course. Behind online giants eBay and Amazon, Wal-Mart, Target, Apple, Best Buy, Toys ‘R Us, Sears, JC Penney, Circuit City, Macy's, Kohl's, and Limited Brands were among the top 20 online retailers with the most shopper traffic on Cyber Monday.
ICSC Launches "Shop Local" Campaign
However, that doesn't necessarily help tradtional stores and store owners. To encourage consumers to visit their local shopping centers, ICSC this month launched a campaign behind the slogan: "Give Your Community a Lift … Shop Locally for Your Gifts,” reminding shoppers that local retailers provide local jobs and support community-based civic and charitable organizations. Further, ICSC has public service announcements running on major networks for the next two weeks.
“Many consumers shop online and avoid paying sales tax, and while this may appear to consumers as a way of saving a few dollars, in the end it may cost them more if local tax revenue is eroded and municipalities are forced to cut back on services,” said Michael P. Kercheval, ICSC’s president and CEO.
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