Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

The latest consumer news

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There has been some relatively good news regarding consumer spending lately…consider these tidbits:

  • The Conference Board Consumer Confidence Index which had declined in July, improved moderately in August — source.
  • We did not see a significant decrease in back-to-school spending despite the continued concerns over the economy — source.
  • There is strong evidence that firms who are focused on their core customers continue to prosper — source.
  • The demand for lawn and garden consumables like fertilizers, pesticides, growing media, seeds, mulch, etc. are expected to increase by 3.4 percent per year through 2014 — source.

Forecasting retail sales via satellite

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From Mark Perry’s blog Carpe Diem:

“As part of a growing trend among hedge funds and Wall Street firms, Cold War-style satellite surveillance is being used to gather market-moving information.  The surveillance pictures are often provided by private- sector companies like DigitalGlobe in Colorado and GeoEye in Virginia, which build and launch satellites and take pictures for US government intelligence agency clients and private-sector satellite analysis firms.

That means there are two links in the chain before the satellite data gets to Wall Street—a satellite firm takes the pictures and sells them to an analysis firm, which scrutinizes the images and sells the aggregated data to hedge funds and Wall Street analysts.

UBS analyst Neil Currie had been looking at satellite data on Wal-Mart during each month of 2010, and he’d concluded that there was enough correlation between what he was seeing in the satellite pictures of Wal-Mart’s parking lots to the big-box chain’s quarterly earnings, that he was ready to incorporate that data into UBS’ report on Wal-Mart, which releases its earnings on Tuesday.

Currie purchased his analysis from a small two-year old Chicago-based firm called Remote Sensing Metrics LLC, which had scoured satellite images of more than 100 Wal-Mart stores chosen as a representative sample. By counting the cars in Wal-Mart’s parking lots month in and month out, Remote Sensing Metrics analysts were able to get a fix on the company’s customer flow. From there, they worked up a mathematical regression to come up with a prediction of the company’s quarterly revenue each month.

UBS predicts that Wal-Mart’s second quarter sales will be up from the first quarter, but down a percent against the same period a year ago. But the satellite analysts figure that the number will come in 0.7 percent higher—not lower—based on the traffic surge they saw in the parking lots.”

Read more here.

Pent-up demand showing up strong

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From the WSJ today:

U.S. retail sales surged in March, topping expectations and giving a strong sign consumers are growing more confident the economy is improving. Retail sales leaped by 1.6% last month, the Commerce Department said today. Economists surveyed by Dow Jones Newswires had forecast a 1.3% increase. The gain was the biggest in four months.  Robust car sales drove the much of the better-than-expected increase in retail sales. Yet excluding the automotive sector, other retailers were strong as well. Clothing stores, for instance, saw sales jump by 2.3%. The report Wednesday was another suggestion that a pent-up demand from the recession is being unleashed within the recovering U.S. economy.

Here is a nice graph from Mark Perry showing the trend:

Another graph from EconompicData shows the strong building material and garden supplies category:


Olympic-sized Update

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I had a few folks comment that my last post was perhaps the most negative that they had seen on Making Cents (given my tendency to try to find the silver lining in most cloudy situations), but remember, I was quoting Bill Kirk who is the CEO of Weather Trends International. I did so because Bill and the folks at WTI have an amazingly accurate track record of forecasting retail sales based on their weather models.

So after the February retail report actually showed same-store retail sales actually INCREASED by 3.7%, I emailed Bill the following:

Bill:
After your persuasive post on the downward expectations on February SSS sales due to snowmageddon conditions, I’ve been checking the SSS reports released today (from ICSC and others) which seem to indicate a 4% increase for the month, which is actually higher than the 2-3% Wall Street expectations. Is this correct? If so, given your excellent track record, is this just one you missed this time?
Thanks for your input,
Charlie

As usual, Bill is always prompt in returning comments on WTI forecasts and he emailed back with the following reply:

Charlie,
Good morning. Retailers for the most part were all well above expectations but many did comment that the record snow cost them 1% to 2% in lost sales. Bottom line, they overcame the 9 major hurdles but they were up against the easiest February comp ever last year which was -4.3% so the +3.7% gain captured most but not all of last year’s huge losses. The expectations for March have been set very low at +2.5% by Wall Street but with the first major Spring surge of warm weather late month around Easter, retailers are poised for a blow out month with exceptional sales gains well above expectations. Why? Because they’ve had two back-to-back really bad March sales in 2008 = -2.3% and last year -5.1% due in large part to cold/snowy weather around Easter the past two years. Net-net we missed this one but Wall Street was surprised by the prior 2 strong months so we’re still up on the street!
Bill

I agree. I still hold a great deal of respect and will continue to follow the weather-based retail modeling by WTI (and others) because they represent one more layer of information to help us all in making more informed managerial decisions. Just goes to show that its hard for anyone who’s brave enough to do some forecasting to get it right 100% of the time!

That being said, I do agree with Bill that expectations for March are OPTIMISTIC given the level of “pent-up demand” that is generally being touted in the marketplace. Again, last spring was pretty good given the circumstances and with the industry going into this spring with consumer confidence a lot higher than last year; the Conference Board’s leading economic indicator index having increased for the 10th straight month; and the latest job market report mostly positive, I feel we are positioned about as well as we could be going into the spring season.

All that is left to do now is to put our best differentiated foot forward and make sure that we not only exceed consumer expectations, but delight them in the process!

Nine Olympic-sized Hurdles For February Retail SSS

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From Bill Kirk of Weather Trends International:

There is a growing avalanche of bad news for overall February 2010 retail industry same-store-sales. Results are announced March 4th – here are 10 reasons why they will likely come in much lower than the +2% to +3% expectations on Wall Street:

1. Snowmageddon! February national snowfall will be off the chart and likely to crush all records for the snowiest February in 115 years. It’s tough to convince consumers to make Spring purchases when snow is all we see. THIS IS A BIG NEGATIVE!

2. The most highly correlated external factor to overall retail industry same-store-sales (SSS) is SNOW with an 84% correlation toward LESS being more favorable for higher SSS. Over the past 30 years, a snowier February results in lower than expected SSS for 82% of cases. THIS IS A BIG NEGATIVE!

3. A cold/wet/snowy February average SSS are +1.3% over the past 30 year’s vs a warm/dry/little snow February which brings much higher SSS of +6.7%. THIS IS A BIG NEGATIVE!

4. There were 21 days this February with significantly more snow than last year and the most snow before Valentine’s and President’s Day in decades. Nearly 70% of the country was covered in snow (49 of 50 states) prior to Valentine’s Day – the most on record. THIS IS A BIG NEGATIVE!

5. The Consumer Confidence Index is the 2nd most correlated external factor to retail industry SSS at 73%. While February consumer confidence came in at 46, much lower than the 55 predicted, it is down from the 56 in January. 90 is considered a good economy. THIS IS A BIG NEGATIVE!

6. The next most correlated factor is temperature (46%) with warmer being better. February 2010 is on pace to be the coldest since the 1970s (30+ years) with a 5.2F drop from last year. Every 1F colder can cost retailers up to 0.7% in lost sales. THIS IS A BIG NEGATIVE!

7. A stronger than expected January (we had that in 2010 with the +3% gain) is followed by a weaker than expected February in 63% of cases over the past 30 years. THIS IS A NEGATIVE!

8. Unemployment is at +9.7% this February vs +8.1% a year ago. THIS IS A NEGATIVE!

9. Gasoline prices are up +39% vs a year ago at $2.66 a gallon vs $1.91 gallon. THIS IS A NEGATIVE.

10. THE ONE BIG POSITIVE? Very easy comparisons to last year February SSS results which were the worst in 30 years at -4.3% according to data from ICSC. If it wasn’t for this easy comp, February 2010 would be a complete disaster; even with the easy comp results are likely to be much lower than expected!

Stay tuned for the March 4 report to see how WTI’s forecast comes out.

American Consumption and the New Normal

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American consumer attitudes about how we think about and spend our hard-earned dollars are undergoing the biggest change since the end of the Great Depression and World War II. As in the 1940s, we now find ourselves in a moment of turbulence, confusion, and new beginnings. Heading into a new year and a new decade, we’re starting to get an idea of what our “new normal” may look like for consumers. At the end of… more, click here

Home centers down but optimistic

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Home improvement retailer The Home Depot, Atlanta, GA, reported sales for the second quarter ended August 3, 2009, were $19.1 billion, down 9.1% from the prior year period. Profit declined 7% to $1.12 billion. “Concerns about the housing market, rising unemployment and softness in the overall economy continue to pressure consumers,” CEO Frank Blake said. “Our business performed well in a down market, we captured market share and drove operating productivity. The combination made for a solid quarter relative to our plan.”

Lowe’s reported net income of $759 million for the quarter ending July 31, a 19.1 percent drop from the same time a year ago; this translated into an earnings per share of 51 cents. Sales dropped 4.6 percent to $13.8 billion, and fell by an average of 9.5 percent in stores open at least a year. Lowe’s management blamed the bad quarter on shaky consumer confidence, bad weather, and a harsh comparison to last year’s quarter, when consumers were prodded into the store by a fresh influx of federal tax rebate checks. But CEO Robert A. Niblock said in a statement that there are signs of a bottoming out in housing and the larger economy, so the company expects D.I.Y.ers to begin trickling back into stores.

Retail sales up slightly

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Today’s report indicates that advance monthly retail sales in June 2009 increased 0.6% from May but declined 9.0% from June 2008, to $342.1 billion. Excluding autos, June retail sales rose 0.3% from the prior month but declined 7.9% from the prior year.

Some might consider this a dead cat bounce given that the increase was almost entirely due to the combination of a 2.3% rebound in motor vehicle sales and a 5.0% price-related surge in sales at gasoline stations.

“On the whole, this was a decidedly mixed report as the better than expected print on the headline number masks the weak underbelly of core consumer spending, which continues to decline” as one commentator puts it.

Looking at the quarterly retail sales trend shows that retail sales have risen 3.5% over the last three months versus a 9.0% decline over the last year.

In like a lion, out like a lamb

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My friend, Dean Chaloupka, offers the following commentary on the spring season:

Talking with growers around the country, most did very well through the peak of the Spring 2009 season and have seen sales drop off during June. Depending on what part of the country you are in, this could be viewed as significant (North) or not (South).

I won’t go into the economic factors which contibuted to the industry fairing well through most of the Spring but will touch on a couple which growers and retailers should think about as softer June sales have reminded us.

1. While consumers stayed home in Spring and focused on decorating their homes and yards, the economy is still on peoples minds and many consumers are on budgets. Consumers will not spend as freely as in better economic times.

2. People will make their purchases last longer. Plants will be maintained and not pulled out and replanted as often.

3. Disposable income still plays a role in how much people will purchase for plant material. Gasoline has started to move upward again and can impact sales going forward if the trend continues.

4. Consumers need a reason continue to purchase plant material. Later in the season, new and fresh planters, baskets, etc will generate new sales but it should not be expected that left over flats, 4″, 6″ pots and items which are the same thing consumers saw earlier will meet a need. At this time, consumers will no longer “grow” the plant.

It is my expectation that consumers will view plants and horticultural products for the rest of 2009 just as they have done in June. They will need to be enticed to decorate and the same old products, plants, packaging, and messages will not do it.