Is the second half empty?
August 5, 2002,
Looking for some guidance on retailing's second-half outlook? Cast a glance at a pair of headlines that came across the wire within an hour of each other one afternoon last week:
"Retailers' hopes sink as signs of turnaround fade."
In other words: Your guess is as good as mine.
In the optimists' corner, Moody's Investor Service said that while the intense level of competition puts some retailers at risk of losing market share, the economy's steady recovery should limit future damage to the sector as a whole. Solidly run companies such as Wal-Mart, Target Corp. and Costco should grow stronger during the period as well, according to the firm.
"Although the improving economy will not be a panacea for solving all ills, it should allow some retailers to improve their operating cash flow and credit measure," said Marie Menendez, Moody's vp/senior credit officer.
Moody's added that it expects to make fewer downgrades on retailer credit ratings this year, even though the overall rating outlook for the industry continues to be negative. Last year, Moody's downgraded 49 retailers. So far this year, it has downgraded 20 retailers and right now has stable outlooks on 61 percent of the 105 retailers it covers and negative ratings on 25 percent.
Banging the drum for the pessimists is America's Research Group, which is predicting that the second half of the year is going to be "extremely soft" for retail. Looking for a retail rebound? "Don't hold your breath," ARG chairman Britt Beemer told Reuters Company News. The signs: declining consumer confidence and predictions from some quarters — including youth-oriented apparel retailers Hot Topic and Children's Place Retail Stores — that the Back-to-School season may be a lackluster one. The fact that both Wal-Mart and Target Corp. said their weekly sales were off the mark in late July further muddied the outlook.
Beemer placed some of the blame on retailers themselves, saying that by running their inventories lean, retail companies are missing out on opportunities to entice shoppers with novelty items or to maximize promotions. Worse, nearly three-fourths of 1,000 consumers polled in a weekly survey by the research group complained that "all stores within the same category look alike."
That statement would come as an enormous shock to the likes of Target and Kmart, which recently unveiled impressive Back-to-School programs for the college-bound from Todd Oldham and Joe Boxer, respectively.
Ask around among home textiles suppliers and you'll get pretty much the same pair of divergent views. The optimists are only cautiously enthusiastic. The pessimists are firm in their convictions. And the number of opinions falling into each camp seem to be fairly well matched.
The fact that nobody out there is clanging the bell in favor of a big second half pretty much says it all. From now through December, it's going to be a bare-knuckled race to the finish line.
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