Spending remains low as suppliers adapt

Don Hogsett, June 21, 2004

New York — Bringing in more of the goods they sell, and shutting down more of their own plants, American home fashions suppliers are keeping their capital spending near historic low levels this year, often doing little more than routine maintenance on the plants they still have, or putting money into the information systems that that drive the efficient supply chain their customers demand.

For years, suppliers expected to pay out at least 7 or 8 percent of their total sales each year in capital outlays just to run in place, even more to add capacity. Now, importing more of the products they sell, and competing with customers who are doing the same, even the strongest player out there, Mohawk Industries, is spending little more than 3 percent of last year’s sales to update its plants and equipment.

Even their customers, the nation’s big retailers, are pulling in their horns somewhat. Perhaps finally catching on that the nation is over-stored, merchants are opening stores at a substantially slower pace. In fact, four of the nine retail chains canvassed, almost half, say they’re planning to open fewer stores this year than they did in 2003.

Even Wal-Mart, the world’s largest retailer, notes that sometimes growth comes with a price. CEO Lee Scott observes in the retailer’s report that there’s still plenty of room to grow its U.S. store base. But later, in the fine print, the retailer notes, "As we continue to add new stores domestically, we do so with an understanding that additional stores may take sales away from existing units. We estimate that comparable store sales in fiscal 2004, 2003 and 2002 were negatively impacted by the opening of new stores by approximately one percent. We expect that this effect of opening new stores on comparable store sales will continue during fiscal 2005 at a similar rate."

Even if Wal-Mart is opening more stores this year than it did a year ago, some other big retailers aren’t. Bed Bath & Beyond indicates it’s scaling back its openings to 57 this year from 85 a year ago, and some of those are likely to be Christmas Tree stores. TJX is opening 17 percent fewer stores, 182 versus 219 last year. Federated only seven, down from 12 in 2003, a drop of more than 40 percent. After opening 49 net new stores last year, Linens ’n Things says it’s planning to open 45 to 50 this year, and that total could be offset by further store closings.

For the complete version of this story, see the June 21, 2004, issue of Home Textiles Today.

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