The Hindu Business Line : Trends in US retail sales

Retail sales in the US made a surprise rebound in January 2009, recording a one per cent gain against a consensus estimate of a 0.8 per cent decline. The rise in sales, coming after a three per cent drop in December, was unexpected, given the dismal sales numbers reported by leading retailers recently. Could this be a ray of hope for exporters in India? Not quite.

Retail sales steadily plummeted in the last six months of 2008, with even the holiday season in December failing to lift performance. With inventories piling up, retailers have been aggressively de-stocking by resorting to heavy discounts and protracted end-of-season sales, which appear to have helped the sales numbers in January. The recovery in consumer spending is likely to be short-lived, however, with the unemployment situation in the country worsening and consumer confidence at record lows. Sales are still down nearly 10 per cent on a year-on-year basis. Contrary to the data released by the Department of Commerce, many retailers declared sharp dips in same-store-sales in January.

Performance: Same-store sales at luxury retailers such as Nordstrom, Saks and Neiman Marcus declined 10-25 per cent in January. Luxury retailers and departmental stores fared worse than big-box discount stores that retail a variety of merchandise, as consumers sought cheaper brands and better bargains. Wal-Mart notched up a stronger-than-expected 2 per cent increase in same-store sales in January.

But even the better performance of discount retailers has been helped by sales of food and grocery, as consumers do not cut back on necessities unless they have to. In what signals an alarming trend for consumer spending, Wal-Mart recently revealed that its customers were using gift cards received during the holidays for buying basic necessities such as food and groceries. Gift-card use across retail chains, which traditionally buoys buying in January, has been lower than usual.

Outlook: The trends in US retail sales are not too encouraging for Indian exporters of apparel, home furnishings and other merchandise in the near term. Although demand for cheaper products could prompt retailers to continue sourcing from countries such as India and China, they are likely to exert greater pressure on prices to preserve their margins. Volumes, too, could dwindle as international retailers grapple with higher inventories.

(The author is a freelance writer based in New York. This column will track trends in key macroeconomic releases from the US economy, to provide cues to global economic growth and stock markets.)

More Stories on : Retailing | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page