Author: Chad Symens

October 31, 2014

Dollar General has extended the deadline for Family Dollar shareholders to approve a buyout while it continues to recommend a “no” vote on a competing proposal from Dollar Tree.

Dollar General said it extended its tender offer to acquire all outstanding shares of Family Dollar for $80.00 to December 31 from October 31.  Meanwhile, Family Dollar is scheduled to hold a special meeting on December 11 to vote on a merger with Dollar Tree that offers less generous compensation than Dollar General’s bid, but is viewed as offering shareholders a higher degree of certainty concerning regulatory approval.  Dollar General has disputed that assertion and both it and Family Dollar have presented their respective experts to offer opinions on the merits of a Dollar General versus Dollar Tree acquisition.

Dollar General wants Family Dollar shareholders to vote against the Dollar Tree merger to send a clear message to the Family Dollar board to engage in discussions with Dollar General.  The company said a vote against the merger agreement with Dollar Tree would not obligate Family Dollar shareholders to tender their shares in the Dollar General tender offer.

Dollar General said it remains committed to the proposed acquisition of Family Dollar and will continue to cooperate with the Federal Trade Commission to obtain antitrust regulatory clearance for the transaction.

Source: Retailing Today

October 24, 2014

Temperatures are forecast to trend warmer than last year and normal across the Northern Plains and Northeast.  The South will be warmer than last year, but not too far from normal.  The West will trend cooler than last year with much greater precipitation in the Pacific Northwest.  In fact, much of the nation will trend wetter than last year.  Milder weather across the North may require more aggressive markdowns than planned earlier in the month, but increased rainfall will help to keep it from feeling too mild.  Black Friday weekend looks milder in the East with rain in the Central states.  Although, for the most part, the North will trend warmer, increased mositure means an increased risk of snow, especially in the West.  The heaviest snow will be across the interior Northeast, Minnesota and the Rockies.  Wetter trends in the West will help to get consumers in a winter mindset.  The lack of real cold weather will be especially noticeable for hardline categories, like heaters and auto batteries.

Source: Retailing Today, Weather Trends International

October 30, 2014

Retailers are in for a “humbling holiday” with a 3.4% overall increase in sales and a deceleration in e-commerce growth, according to a new forecast from retail industry consulting and research firm Customer Growth Partners.

In the 14th annual holiday forecast, the 3.4% increase in sales is well below projections of others, most notably the National Retail Federation, which has holiday sales advancing 4.1%.  E-commerce/direct-to-consumer sales will continue to decelerate, after two decades of robust double-digit growth, to just under 7% for holiday 2014.  Craig Johnson, president, said his pessimism is due to a difference of opinion over the biggest drivers of sales.

“Contrary to much conventional wisdom the single best predictor of retail sales is neither gasoline prices, the unemployment rate or consumer confidence, but growth in disposable income,” Johnson said.  “And the fact is that real median incomes have flatlined, if not declined, for many years now.”

If the 3.4% growth rate proves accurate, Johnson said it will be the third straight year of dismal retail spending following a 5% pace of growth in 2010 and 2011.  Overall retail sales for the November through December holiday period will reach $590 billion.  While that is a new record, the anemic 3.4% growth rate only marginally exceeds 2013’s 2.9% pace, and reflects declining median incomes for all but the top 10% of households, according to Johnson.

In addition to the impact of lagging income growth on spending, Johnson believes the declining share of the population with full-time jobs will also have an impact.  Only 48% of the working age population now holds a full-time job, the lowest in decades, and down from 54% as recently as 2006, according to Johnson.

“The shift to a ‘part-time economy’ has caused spending to rotate from discretionary goods to non-discretionary goods.  Consumers with full-time jobs spend against both needs and wants, but those with part-time jobs spend only against needs.”

Another headwind this year relates to a sharp price increase for food which accounts for some 15% of spending for moderate and lower income households.  Food price increases far outweigh this fall’s savings on gasoline costs, which comprises barely 4% of household budgets, according to Johnson.

Lastly, recurring monthly obligations, from cellphone and cable bills to record-high student loans are commanding a growing portion of disposable income, curbing potential gift giving.

Among merchandise categories, health and personal care stores will outpace other sectors with strong 6.3% growth while apparel sales will lag the already sluggish overall growth pace, with growth of only 2.4%.  Department stores will struggle again this year, both with the weak apparel sales and softening demand for the once white-hot handbag category, and will see essentially zero growth while consumer electronics will rebound strongly, with growth exceeding 4%, according to Johnson’s forecast.

“Holiday shoppers in 2014 remain very cautious in their spending, and will be relentless in seeking out value,” Johnson said.  “But retailers dependent on healthy discretionary spending will find this another challenging holiday, particularly those who placed holiday orders last May, when sales were still healthy.  Holiday 2014 will be a marginal improvement from last year, but until real income growth resumes, Santa will be hard-pressed to fill the Christmas stockings for either consumers or retailers.”

Source: Retailing Today 

October 30, 2014

The iconic suburban, single-family American home isn’t going anywhere – and neither are their Baby Boomer owners.  Contrary to common perception, the post World War II generation will not be trading home ownership for renting, suburbs for cities, or yards and gardens for more maintenance-free living.  Rather, most Boomers will age-in-place, while Boomer movers will account for nearly one in every four dollars spent on housing in the next five years.

The report, Baby Boomers & Their Homes: On Their Own Terms – released today by The Demand Institute, a non-advocacy, non-profit think tank jointly operated by The Conference Board and Nielsen – doesn’t expect this generation to “stick to the script” when it comes to retirement and housing decisions.  The research, which surveyed more than 4,000 Boomer households (ages 50-69), reveals that few have intentions of downsizing or moving to warmer climates far from their families.

“During the financial crisis, Baby Boomers saw their wealth drop dramatically.  While many have been forced to adapt their retirement and housing plans to new financial realities, they haven’t abandoned those plans entirely,” said Louise Keely, President of The Demand Institute.  “For the most part, they are still retiring in their mid-sixties and staying in their homes.  They value strong family relationships; they want to be near their children and grandchildren.  Additionally, many Boomers maintain plans to upsize their homes.”

The next decade will see many Boomers taking on home remodeling projects, as they seek to update and increase the value of their homes.  Nearly 40 percent plan for major home improvements in the next three years.  Yet, according to the report, most continue to prioritize style over the amenities necessary for aging, such as lower maintenance and accessibility features.  Those who do move are not interested in exclusive elder communities, and if they are, they will stay close to their current homes.

“Thanks to a host of factors – not the least of which is the Great Recession – Boomers’ nest eggs have shrunk dramatically in recent years,” said Jeremy Burbank, Vice President at The Demand Institute.  “Financially, this generation is not necessarily ready for retirement, and half of their assets are tied up in their homes.  Despite all of this, many Boomers will look to finance their housing aspirations.  Their choices will have real impact on the housing sector in the next several years.”

According to the report, Baby Boomers are carrying much more mortgage debt than earlier generations at this life stage.  Even so, most Boomers who will purchase homes plan to use mortgage financing to do so, and in contrast to Millennials, the majority is confident in their ability to qualify for financing.

Source: The Conference Board

October 29, 2014

The all-important holiday shopping season is upon us.  NRF’s 2014 holiday forecast calls for a retail sales increase of 4.1 percent to a total of $616.9 billion.  “Holiday sales” are defined as those happening from November 1 through December 31.

Overall, we expect holiday spending to reflect recent economic momentum.  The economy is expanding and there doesn’t appear to be any distinct shift away from the moderate pace of growth.  Growth is expected to continue to be slow and steady following the unusually high degree of volatility we saw in the first half of the year.

Economic growth for the balance of 2014 is forecast to be in the range of 3 percent over the same time last year.  Employment, income and consumer confidence are all improving.

Employment

Labor market indicators point to continued growth.  There have been gains of 200,000 or more jobs every month, except two this year.  Since the end of 2013, more than 2 million jobs have been created.  The unemployment rate – a key psychological indicator for the public – stood at 5.9 percent in September, down more than a full percentage point since the same time in 2013, and at its lowest level since July 2008.  Jobless claims have been below 300,000 for more than a month, which is rare in historical terms.

Income

With more jobs on the books, there is more aggregate income for more spending.  For August and the two prior months, personal income grew 4.1 percent compared with 2013.  As the season nears, we will be keeping a close eye on disposable income to gauge economic activity.

Consumer Confidence

Consumer confidence has reached post-recession highs over the past year.  The University of Michigan Consumer Confidence Index, for example, increased 1.8 points in October to 86.4, its best reading in more than seven years.

Nonetheless, confidence continues to be erratic and difficult to interpret.  With gas prices and unemployment low and smaller debt burdens, consumers should feel a bit better about their circumstances but they remain cautious.  Their mood may still be impacted by the lingering effects of the Great Recession.

Yet there is a lot of psychology at work, including volatile financial markets, European weakness, a slowdown in China, rising Middle East tensions and now Ebola.  All could still send a chill into consumer confidence, much like last year’s ploar vortex.

Consumer Credit

Credit conditions are improving.  Consumers continue to choose and use credit very strategically.  Revolving credit, though uneven over the past year, has risen recently.  If employment and consumer confidence continue to improve as we expect, revolving credit may continue its healthy pace and help spur retail spending.

Consumers should benefit from easing price pressures.  Summer weather was quite mild this year and gasoline prices have recently dropped, leaving households to spend less on air conditioning and gas, freeing up more disposable income.

Additional Factors

As we observed last year, holiday retail sales can be severely impacted by any transitory factor from higher personal taxes and the debt ceiling debacle to a federal government shutdown and severe winter weather.

This year, it’s too soon to predict the weather but at least Congress has kept the government open and there is no immediate talk of tax increases (at least not federally).

And The Forecast Is…

We look at employment, income, consumer confidence and consumer credit, incorporate a few wild cards such as gas prices, the whims of Congress and the outbreak of epidemics, then come up with an educated and informed figure.  It’s part science, part art.

In the grand scheme of things, consumers appear to be in a much better position this year than last, with a bit more confidence and spending power.  These factors should translate into a solid holiday sales season for retailers and merchants alike.  Nevertheless, shoppers will remain cautious and stick to their budgets this year – just in case we’re wrong.

Source: National Retail Federation 

October 29, 2014

Weaker than expected third quarter sales prompted Kohl’s to lower its profit forecast while noting that e-commerce sales increased 30%.

The company held an investor conference on October 29 and said third quarter sales were expected to decline 1.4% due to softer than expected sales during October.  The top line weakness caused the company to confirm that profits would be at the lower end of a previously forecast range of $4.05 to $4.45 a share.

While the overall forecast for the third quarter is for a decline, the company expects the children’s category to report comparable sales increases for the quarter.  Accessories, footwear and men’s are expected to report lower sales, but to outperform the company average.  Meanwhile, home and women’s are expected to underperform the company average.

Kohl’s currently operates 1,163 stores in 49 states.

Source: Retailing Today

October 27, 2014

Home improvement in New York is in for a new look in 2015 when Lowe’s opens two tiny stores in Manhattan.

Lowe’s is coming to Manhattan to bring homeowners, renters and professional customers the products and services they need to maintain and improve their homes and businesses, the company said.  Its two stores are slated to open in the second half of 2015 at 2008 Broadway at West 68th Street and 635 6th Avenue at West 19th Street.

“We are excited to expand our presence to Manhattan and we look forward to offering Lowe’s project expertise and tailored product selection in two convenient locations,” said Richard Maltsbarger, Lowe’s chief development officer.  “We know customers in Manhattan are already shopping with Lowe’s online and at our New York area stores.  Based on our research, we are developing these locations to meet the unique needs of these customers.”

Both stores will be approximately 30,000 sq. ft. and offer products and services that are locally relevant to customers, including appliances in a variety of sizes, home organization and storage products to maximize space, and inspiring home decor and accessories to refresh living areas.  Most items will be in-stock and many will be delivered from Lowe’s New York area stores.

Lowe’s operates roughly 1,835 stores in the U.S., Canada and Mexico and most are larger than 100,000 sq. ft.

Source: Retailing Today

October 30, 2014

The U.S. Bureau of Economic Analysis today reported 3.5 percent annualized growth in real Gross Domestic Product for the third quarter of 2014, which is above expectations because of strong contributions from net exports and government spending on national defense.

The growth in household consumption was disappointing, and business investment grew only moderately.  Despite extremely low interest rates, residential investment continues to grow unusually slowly, partly a result of very weak household formation.

Moving forward, we expect the U.S. economy to grow at about a 2.5 percent rate on average in the coming quarters.  If moderate growth and therefore the current pace of job creation are sustained, we could even see some pickup next year in wage growth, and a first Fed hike by mid-2015.

Source: The Conference Board

October 22, 2014

Family Dollar Stores on Tuesday announced that it has certified substantial compliance with both the Federal Trade Commission’s second request regarding the acquisition by Dollar Tree, as well as the second request regarding Dollar General’s bid for the company.

Dollar Tree is expected to certify substantial compliance by November 7, the company stated, however Family Dollar has no insight as to when Dollar General will comply with the FTC’s second request.  Family Dollar continues to believe, based on its discussions with the FTC staff, that the FTC review of the Dollar General tender offer will continue well into 2015, the company stated.

Once all parties have certified that they have substantially complied with FTC’s second request, the Commission has 30 additional days to complete its review of the transaction and to take action if necessary.

Family Dollar is committed to cooperating with the FTC’s investigations of both transactions, and providing all of the necessary information from Family Dollar for the FTC to advance its review of both potential transactions as promplty as practicable.

Source: Retailing Today

October 28, 2014

The Conference Board Consumer Confidence Index, which had decreased in September, rebounded in October.  The Index now stands at 94.5, up from 89.0 in September.  The Present Situation Index edged up from 93.0 to 93.7, while the Expectations Index increased sharply to 95.0 from 86.4 in September.

Says Lynn Franco, Director of Economic Indicators at The Conference Board: “Consumer confidence, which had declined in September, rebounded in October.  A more favorable assessment of the current job market and business conditions contributed to the improvement in consumers’ view of the present situation.  Looking ahead, consumers have regained confidence in the short-term outlook for the economy and labor market, and are more optimistic about their future earnings potential.  With the holiday season around the corner, this boost in confidence should be a welcome sign for retailers.”

Consumers’ appraisal of current conditions was moderately more favorable in October than in September.  Their view of business conditions was mixed; while the proportion saying conditions are “good” inched up from 24.2 percent to 24.5 percent, those claiming business conditions are “bad” also increased slightly, from 21.2 percent to 21.7 percent.  Consumers’ assessment of the job market improved moderately, with the proportion stating jobs are “plentiful” increasing marginally from 16.3 percent to 16.5 percent, and those claiming jobs are “hard to get” declining slightly from 29.4 percent to 29.1 percent.

Consumers’ optimism, which had declined considerably in September, improved in October.  The percentage of consumers expecting business conditions to improve over the next six months increased from 19.0 percent to 19.6 percent, while those anticipating fewer jobs fell from 16.9 percent to 13.9 percent.  The proportion of consumers expecting growth in their incomes rose from 16.9 percent in September to 17.7 percent in October, while the proportion expecting a drop in income fell from 13.4 percent to 11.6 percent.

Source: The Conference Board