Has the 'funk' passed? Retail giving mixed signals
For an industry that's delivering such optimistic holiday forecasts, things were looking pretty grim for retailers this week. Apparel company Urban Outfitters (URBN) on Thursday said its third-quarter sales are trending lower than expected, and as a result, its margins could take a hit.
The announcement followed news from Wal-Mart (WMT), which on Wednesday trimmed its sales forecast for the year, citing a "tougher sales environment" than it had anticipated. Also Wednesday, government data showed retail sales dipped 0.3 percent during September . The headlines stood in opposition to rosy forecasts from groups such as Deloitte, the National Retail Federation and the International Council of Shopping Centers, which are all calling for sales to rise at least 4 percent this holiday.
Read More Here's where shoppers will cut back this holiday But the National Retail Federation on Friday stood by its forecast of 4.1 percent growth, saying despite September sales that made them scratch their heads a bit, the overall picture-which includes more jobs, lower gas prices and the absence of a government shutdown-still points to a better holiday than last year's 3.1 percent growth. "Simply put, there's more income in the pot right now," said Kathy Grannis, senior director of media relations at NRF. As it pertains to September's disappointing sales, Kantar Retail's Bryan Gildenberg noted month-over-month retail numbers are volatile, and "not a great read of where the economy actually is." Read More Holiday boost may not help these three retailers But that's not to say there aren't question marks about the overall economy. Although some issues are company-specific-Urban Outfitters' sales, for example, have suffered because of product weakness at the Urban brand-doubts about the stagnant recovery continue to weigh on consumers.
To that point, Janney analyst Adrienne Yih-Tennant said in a note to investors on Friday that although Urban's product mix remains a work in progress, broader issues are playing a role in the company's slow recovery. "We believe macro issues, including the Ebola crisis, global geopolitical unrest, and market volatility, have likely softened consumer demand across the board, which [Urban Outfitters] is not immune from," she said.
Read More What's in store for Christmas? Depends who you ask Britt Beemer, CEO of America's Research Group, sounded a similar note about the broader economy. He not only expects consumers will buy fewer items this year, but said they will continue to be "much more frugal." "I think it's going to be a very tough Christmas season," he said. Research from NRF and and PwC has also pointed to the bifurcated recovery as an ongoing issue-a trend that could be partially to blame for weakness at Wal-Mart. Read More Will consumers come to the economy's rescue? In its holiday forecast, PwC noted the number of consumers who earn less than $50,000 annually increased by two percentage points from last year, to 67 percent. This group, which the firm labeled "survivalists," plans to spend an average $377 per household-a decline of 15 percent compared to the prior year. That compares to an average anticipated drop in spending of less than 1 percent for the set that makes more than $50,000. "There's still definitely those pockets of consumers that are struggling," said Pam Goodfellow, principal analyst at Prosper Insights & Analytics, which conducted NRF's holiday spending survey. Still, Grannis said the National Retail Federation is not ready to lower its forecast. Barring any unforeseen incidents, such as continued tensions in the stock market, she said the trade organization remains optimistic heading into the holidays. "We think that that quote-on-quote 'funk' has passed us," Grannis said.
