The 1-2-3 punch of a payroll tax hike, higher gas prices and delayed tax refunds is starting to take its toll on retail sales. Retailers are not taking it lying down. They’re fighting back with everything from smaller packages to deep price cuts.
Retail giants Target and Walmart are preparing for the increased financial pressures placed on today’s consumers. "As we enter 2013, we will plan appropriately as the U.S. economy is growing at a painfully slow rate and unemployment remains persistently high," said Gregg Steinhafel, Target's chairman, chief executive and president. "While there are some encouraging signs in the housing market, volatility in consumer confidence, the payroll tax increase, and rise in the price of gas all present incremental headwinds."
Walmart attributed the sluggish spending of their customers to delayed tax refunds. "February sales started slower than planned, due in large part to the delay in income tax refunds. We began seeing increased tax refund check activity late last week in our stores, resulting in a more normalized weekly sales pattern for this time of the year," said Bill Simon, Walmart’s U.S. president and CEO. The mega retailer’s strategy includes resizing packages, discounts and offering more products that appeal to their demographic.
Some retailers are still struggling to recover from their holiday-quarter earnings nosedive. J.C. Penney reported a same-store sales falloff of 32 percent during Q4 of 2012. To woo back customers, the retailer will add price tags or signs to more than half of its merchandise, showing customers how much they'll save.
Retail consultant, Burt Flickinger noted that the new strategy could help J.C. Penney because manufacturers' suggested retail prices can be up to 40 percent higher than what retailers often charge. The technique is often used by home appliance retailers, but eschewed by department-stores who typically bump prices way up to create the illusion of a huge discount. "The strategy will be helpful for shoppers to understand lower prices," said Flickinger. "At the same time, it will be tough to get consumers back in the store from competitors."
Mary Winston, CFO at Family Dollar, notes that their customers are feeling the squeeze. "In our case, anything that takes money out of our customer's wallet gives them less money to spend in our stores," said Winston. "So I think all of those things create nervousness for the consumer."
Winston observed a change in consumer spending patterns, particularly in low to middle income shoppers. "What we see in our business is more of a focus on consumables so people will buy food, they will buy cleaning products, they'll buy things they need to support their families on a day-to-day basis, and they may forgo some of the discretionary items," said Winston.
Retail executives who expect consumers to rush back into stores will need to offer more than the usual gimmicks. Smaller packages, real discounts, and stocking items that today’s cost-conscious consumers really need and want will improve retailers’ bottom line.
Image courtesy of adamr/FreeDigitalPhotos.net
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