Lackluster second quarter is not a good omen for discretionary purchases
Many of the nation’s largest retail chains, like Macy’s, Kohl’s, and JC Penney reported disappointing sales numbers in the second quarter, resulting in lowered annual profit forecasts. This is not a promising sign for retailers, as they prepare for the upcoming holiday season, which can account for up to 40 percent of a company’s annual sales.
So what’s putting a clamp on spending? Economic factors like high unemployment levels, higher payroll taxes, and increased gasoline prices seem to be the primary culprits. These factors contribute to the decrease in discretionary spending — apparel to jewelry to perfume — which is the driving force behind the retail holiday season. Highlighting the downward trend in spending is Walmart — often an indicator of the general health of retail economy. The retail giant said in a press release that it would offer free layaway, with no sign-up fee, from mid-September through mid-December in hopes of sparking holiday sales.
But that’s not to say that all spending is down. The Home Depot and Lowe’s reported monster sales figures in the second quarter, showing discretionary dollars are now being spent on big ticket items for the home in a recovering housing market. Despite the growth in home improvement retail, it’s unlikely compound miter saws and slabs of drywall are high on children’s Christmas lists.
The numbers of many retailers during the second quarter were, for the most part, down, but that doesn’t necessarily translate to a poor holiday season for them. In fact, some analysts are projecting cautious optimism. Michael Niemira, VP, chief economist and director of research for the International Council Shopping Centers (ICSC), agrees. “We expect a moderate gain for the season as a whole — despite the gloom and doom that may be in the market in the aftermath of many of the earnings reports,” Niemira said in an interview with Forbes. Niemira continues, “Fundamentally, the economy is improving and consumers are spending in fits and starts — maybe more so than in past years.” The ICSC is predicting a rise in holiday spending, ranging from 3 to 3.5 percent in general merchandise, apparel, accessories, furniture, and other sales.
The economy, as a whole, may be slow climbing through the initial stages of recovery. Retailers’ second quarter earnings statements and the late push in back-to-school are evidence of that. But it’s hard to imagine that in an economy that is generally on the upswing, that images of sugar plums dancing in childrens’ heads won’t translate into reality for them this holiday season.