Mesa Legend - ARCHIVES - Vol. 39, Issue 8


Volume 39, Issue 8. Today is .

YYou are viewing
Volume 39, Issue 8
January 15, 2002

To return to the current issue please click here.

Retailers discount to avoid slump

By Stacey Ray
U-Wire

BIRMINGHAM, Ala. - Despite a promising beginning, the retail industry has suffered from the current recession and thrifty shoppers.

Shoppers, uneasy with the economy, are reluctant to spend money. Retailers are worried about how long the recession will last and how much shoppers will be spending after Christmas and into early 2002.

"The spending outlook for the first half of next year is rueful," said Robert Buchanan, a retail analyst with A.G. Edwards in St. Louis. "(The spending outlook) is just as dour as the rest of the economy."

Even before the attacks on the World Trade Center, retail sales were slumping. Many of the specialty retailers scaled back their holiday orders last spring. The terrorist attacks of Sept. 11 caused many consumers to cancel or return orders, and they made no plans to reorder.

Many of the stores have cut inventory, reasoning that a tight inventory reduces the need to mark down merchandise later. Then markdowns, which cut into profits, will not be necessary.

It is a fine line for retailers to walk. On one hand, the weak sales could leave stores with too much of some products. On the other hand, the stores risk alienating customers if they do not have what the customers want, in turn leaving stores with little to offer customers later.

In addition to inventory woes, discount stores such as Target and Wal-Mart have been taking a percentage of the market share from upscale retailers like Saks Fifth Avenue and Neiman Marcus.

Industry experts estimate sales for this quarter will be down as much as 7 to 10 percent.

Retailers have been relying on special promotions and discounts in an effort to encourage shoppers to spend money.

The Gap, Inc., which owns Old Navy and Banana Republic, is one retail chain that has been hit hard. Gross profit margins have slipped to 31 percent in 2001 from 37 percent a year ago and 42 percent in 1999.

While fashion specialty stores are hurting this season, stores emphasizing the home continue to do well. Online shopping is up about $19 billion from last year.

Some experts are concerned that the aggressive discounting that has gone on this season may cut into profits for January and February of 2002.

Others disagree.

"The key to this Christmas was whether the retailers were going to be able to empty their shelves of inventory so that they would be in position to start ordering from the factory again," said Carl Steidtmann, chief economist at Deloitte Research, who specializes in consumer spending.

"The silver lining of this Christmas is they were able to accomplish that through very aggressive discounting."