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A Bumpy Bottom for Retail?

Another tentative sign of economic stabilization came on May 7 as retailers reported improved sales results for April compared with March. The sales gains were helped by this year's Easter shift into April as well as a slight improvement in consumer confidence, analysts said.

Sales at 35 outfits tracked by Retail Forward increased by 0.9% for the month, compared with a fall-off of 1.9% in March. However, the April figures are down from the 3.7% rise reported in April of last year. In 2008, Easter fell on Mar. 23.

"The retail sales declines are finding a bottom, but it's a bumpy bottom," Frank Badillo, senior economist at Retail Forward, said in a news release. "The Easter shift has caused some of the turbulence of the last two months. In the coming months there will probably be more bumpiness because of the effect of last year's economic stimulus and the uncertain impact of this year's stimulus."

The results that have come in so far show that discounters, such as Wal-Mart (WMT) and Target (TGT), and household essentials, including drugstores such as Walgreens (WAG), are growing modestly.

Wal-Mart reported a 5% same-store sales advance, much better than the 2.9% analysts surveyed by Thomson Reuters had expected. "We gained new customers, improved our market-share position, and found that when customers had more money to spend, they spent it more often at Wal-Mart," Vice-Chairman Eduardo Castro-Wright said in a statement.

Better Inventory Management

Meanwhile, most discretionary stores selling apparel and accessories, such as Macy's (M), are still experiencing declines as they continue to reorganize their companies and adjust their inventories. Macy's saw a 9.1% drop in same-stores sales, worse than forecast, but boosted its first-quarter outlook. J.C. Penney's (JCP) 6.6% drop was a little worse than expected, but better than the company's guidance. It also upgraded its first-quarter profit outlook.

There is a sense of stabilization because stores are getting better at managing their inventories and responding quickly with discounts, and some stores, such as Gap (GPS) and American Eagle (AEO), were down but not as much as analysts expected: Gap slid 4%, vs. an 8% decrease predicted by analysts, and American Eagle was down 5%, vs. an anticipated 7.8%. "Just to say things have stopped getting worse is a huge step," says Michael McNamara, a vice-president for research and analysis at MasterCard Advisors.

Also contributing to the sense that some sort of bottom has been reached is a slight improvement in consumer confidence. In March it rose to its highest level since before the credit meltdown last fall, according to the Reuters/University of Michigan index of consumer sentiment. Confidence will also get a bit of a bump from the fact that initial jobless claims fell last week, to the lowest level in three months. However, consumers are still very value-focused, responding to promotions but spending modestly. "There's a lot of pent-up demand," says Matthew Katz, who leads the retail practice at corporate advisory firm Alix Partners. "But the consumer is not yet ready to declare victory, to go out and spend until things settle down in Detroit, the financial community, and the commercial real estate markets."

One bright spot in a generally bleak financial picture is online retailing. In a study released on May 5, the National Retail Federation says online retailers are better suited to weather the downturn than traditional stores. The report notes that online retailers are trying to retain existing customers as well as grab market share from weakened competitors.

The study polled 117 online retailers between Feb. 18 and Apr. 1. Forrester Research, which conducted the study, forecasts that online retail sales for 2009 will grow to $156 billion in 2009, up 11% from last year. However, online retail remains a small portion of the total retail market—about 6%.

The Associated Press contributed to this report.

McConnon is a staff editor for BusinessWeek in New York.
Mintz is news editor for in New York.

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