S&P likes the look of home

Don Hogsett, Staff Staff, September 16, 2002

New York — Most specialty retailers, regardless of format, size or any possible improvement in the overall economy, face a rough ride for the balance of the year, with sales and profits both under heavy pressure, with one big, notable exception —home furnishings retailers like Bed Bath & Beyond and Linens 'n Things.

And those big-box home goods retailers should do even better as the economy improves, outpacing other retail categories, said Standard & Poor's retail analyst Karen Sack in a recent S&P Industry Survey of specialty retailing.

Sack singled out four home-related categories — home furnishings, furniture, electronics and appliance — as the clear winners in a prolonged slough in American retailing that dates back to early last summer, well before the terrorist attacks of Sept. 11 that emptied malls and disrupted sales across the nation.

Sales trends through the first five months of 2002 reflect a pattern similar to 2001, said Sack, when consumers pulled back on spending but were spending nonetheless. It's just a question of where they put their money.

"The fortunes of specialty retailers have varied by category," said Sack. "While some segments are doing well as a result of strong market conditions and favorable demographics, others have been hurt by over-expansion, competition and price-cutting."

And while other formats are feeling the pain, home goods retailers are reaping the rewards. "Sales at home goods retailers outpaced other specialty retailers, with a 19.2 percent increase in 2001 for the top eight chains," said Sack. "The top percentage gains were achieved by Bed Bath & Beyond, which posted a 22 percent rise in sales to $2.9 billion in 2001; followed by Linens 'n Things, up 16 percent to $1.8 billion; and Pier 1 Imports, up about 10 percent to $1.5 billion."

And as the economy improves, said Sack, sales for home goods retailers continue to improve. "Americans' appetite for home-related merchandise should continue unabated.

"Sales of merchandise in the home furnishings category, such as decorations and bedding, should outpace most other merchandise categories."

And for a chain like Bed Bath & Beyond, that would mean just more of the same. Indeed, of the 41 specialty retailers measured in the S&P survey — spanning such diverse formats as The Gap, Barnes & Noble, Home Depot and Circuit City — Bed Bath & Beyond came in second in 10-year compounded growth, with a growth rate of 33.1 percent, just behind electronics powerhouse Best Buy, with a 35.6 percent rate of growth.

"We anticipate continued gains in sales for items like decorations, kitchens and bedding. Bed Bath & Beyond and Linens 'n Things plan steady store growth in their big-box stores to accommodate the growing demand," said Sack.

Another home goods category to benefit, said Sack, is the fabric and crafts channel, which historically outperforms when the economy turns sour and consumers start to do it themselves rather than pay full retail prices. "Sales of the top seven retailers of craft supplies were up almost 9 percent for the year," said Sack, "as Americans chose to spend more time on activities at home and with family members following the events of Sept. 11.

Michaels Stores is the No. 1 retailer in this sector, with $2.5 billion in sales for 2001. Jo-Ann Stores, with 2001 sales of $1.6 billion, was in the No. 2 spot, although the company operated 959 stores vs. 850 for Michaels."

Apparel, by contrast, remains the weak sister of specialty retailing, with sales edging up a skimpy 0.7 percent last year, said Sack. Spelling out the truism that people spend more on their children than they do on themselves, "sales at family clothing stores had the best performance, with sales up 1.6 percent. Sales at women's apparel stores fell 2.5 percent; and those at men's stores declined 1.8 percent."

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