US Retailers Already Cutting Prices For Spring

Continuing on the topic of retail, here is another story from the WSJ discussing how many retailers are already slashing the prices on spring merchandise.

From the WSJ:

“Worried that consumers won’t go back to paying full price after the holiday season’s deep discounts, some retailers are cutting prices on early spring merchandise as soon as it hits store shelves.

The deals on fresh goods suggest that retail profit margins will remain under pressure in the first half of the year. On Thursday, most chains are expected to report that their same-store sales declined in December, with many likely to cut their profit outlooks.

“This is really the first time that we have seen such quick discounting on new seasonal goods,” said Kimberly Greenberger, an analyst at Citigroup Inc (C).

On Wednesday, discount giant Wal-Mart Stores Inc. (WMT) said it would cut prices this week on certain exercise machines, athletic apparel and food items, in what it calls the second phase of its Operation Main Street initiative to help consumers save money, this time on health-related products.

Many deals at other stores involve apparel, which has a short shelf life and must be cleared out quickly to make way for new styles. Spring orders were generally placed before the financial crisis exploded in late September, causing consumers to cut spending sharply. As a result, stores may once again have more inventory than they need to meet demand.

By trimming prices selectively on early spring goods now, department stores, specialty apparel chains and teen retailers hope to persuade skittish shoppers to buy new styles, analysts said. They’re also trying to capitalize on crowds flocking to winter clearance sales, fearing that traffic will fall off sharply after the sales end.

“It’s never a good thing to be marking down merchandise as it hits the floor,” but “if you have to move [it], try to move it when traffic is in the mall,” said Amy Wilcox Noblin, an analyst at Pali Capital.

This situation points towards some on-going struggles for retail, namely that you can’t put the genie back in the bottle with respect to prices and it’s unlikely that consumers are going to be willing to pay higher prices in nine months, when the economy recovers, etc. In other words many of the margin pressures introduced over the last two years are likely to be around for the foreseeable future.

Couple the margin pressures with a post credit boom consumer who isn’t likely to have access to as much credit as he/she did in the past (even after the credit crunch is over), and it stands to reason that even after the economy recovers many retailers will continue to struggle or at least have to re-size operations to fit a new marketplace.

You can read more here.

Source:

The WSJ : “Retailers Keep Cutting Prices” — Jennifer Saranow, Cheryl Lu-Lien Tan, January 8, 2009.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

Posted in Categories: Contributor, Economy, External Research.

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