For a moment, you could almost hear the sighs of relief. When a trio of big U.S.-based retailers reported second-quarter earnings on Tuesday that beat analysts' expectations, the markets responded with a little spring in their step.
Were consumers finally stripping off their recession-era duds to come to the rescue of the world economy?
Alas, a closer look at the numbers reported by Home Depot Inc., HD-N Target Corp., TGT-N and Saks Inc. SKS-N suggests none of the conventional approaches for targeting consumers are having an effect. The news from all three retailing powerhouses was only good because it wasn't as bad as everyone expected, and consumers are still window-shopping instead of heading to the cash.
Home Depot's second-quarter profit was down 7.2 per cent to $1.12-billion (U.S.) from $1.2-billion, while the high-end retailer Saks had to choke down a loss of $54.5-million. Meanwhile, Target, which has ridden a whimsical image of smart and fashionable fun to its position as the No. 2 U.S. discount chain, reported profit of $1.064-billion in the quarter, down 3.1 per cent from a year earlier. That followed last week's news that even Wal-Mart Stores Inc. had suffered a 1.4-per-cent drop in revenue.
The U.S. consumer who is supposed to drive the economic recovery has yet to relax behind the wheel and stop shaking with anxiety. Penny-pinching has cut across a broad swath of the retail landscape, as shoppers steer clear of luxe goods at the likes of Saks, but also cut down on the more downmarket but still chic offerings of Target, and even the household staples at Wal-Mart.
Instead, consumers are looking to the lower rung of the retail ladder: the discounters. TJX Cos. Inc., which owns T.J. Maxx and Marshalls, reported a 4-per-cent rise in sales, and attributed it to “extraordinary increases” in customer traffic.
To try to lure back the most cost-conscious shoppers from the discounters' aisles, retailers such as Target have responded by retooling their advertising campaigns to focus more heavily on price. In television ads this season, the red-and-white bull's-eye marketer has heavily sprinkled its message with prices for inexpensive goods like summer clothing for the whole family.
“They're trying to reposition themselves with a bit more of a price story, where previously they really avoided that aspect,” said Scott Smith, a senior vice-president with the brand consulting company Interbrand. “Target has definitely struggled in this economy.”
Once at the mall, shoppers are reminded by in-store displays that Target regularly checks its competitors' prices.
But even the new marketing focus on price may not be enough.
Consumers, while more confident in their own financial security than they were during the dark days of last winter, still have legitimate reasons to be nervous: Unemployment is projected to remain high for the next year, consumers perceive that their paycheques are not keeping pace with inflation, and many workers remain concerned they'll be laid off, said Ken Goldstein, a labour economist with the New York-based Conference Board.
The recession, now more than halfway through its second year in the United States, is still holding on tight. “To be blunt about it, [consumers] are wondering how goddamned long this is going to go on,” he said.
With U.S. students returning to the classroom in less than three weeks, early back-to-school sales seem to be a widespread bust. Worse, those sales are a key signal for U.S. marketers and retailers on how to approach the holiday season. If sales remain sluggish this month, the rest of the year will be a washout, too.
Mr. Goldstein noted the increase in the savings rates for U.S. consumers was preventing a speedier recovery. “In some past recessions, consumers were not spending money consumers didn't have. This time around is different. Consumers are not spending money consumers do have,” he said.
While the increase in the savings rate is a necessary step for the long-term health of the economy, few seem as concerned about the state of affairs 10 years down the road as they do the state of affairs next year. The U.S. consumer, then, isn't so much a superhero as a cardiac patient that needs a jolt of life now.
“The money is there if consumers decide to spend, but there's no evidence they're in any mood right now, or are likely to be through the holiday season, to start to spend some of that money.”
