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For Retailers, It Was a Long, Hot Summer

Despite promising results from a variety of economic indicators, retailers are clearly feeling some heat, as July’s results of VNU’s Retail Index show retailers’ confidence in both current and future business conditions continuing to decline.

July was likely the hottest on record since 1895, according to Wayne, Pa.-based Planalytics Inc, which advises companies on weather trends. They estimate that weather-driving retail demand was 14 percent higher in July 2005 than during the cooler-than-normal July 2004.

And there has been more positive economic news as the latter part of the second quarter. Total retail and same-store sales were up, business investment, manufacturing and housing figures were all strong. The per-month average of jobs added beat last year’s result-and 2004 was the highest job creation figure since the ’90s.

Despite that promising news, retailers showed continuing pessimism as the Index of current business conditions fell to a new low of 93.2 in July, a full 15.2 points lower than it was a year ago at this time (December 2003=an index of 100). A total of 52.6 percent of retailers gave a positive current evaluation (compared to 65.8 percent a year ago), while 15.8 percent were negative and 31.6 percent were neutral.
Smaller companies, in particular, felt pressure, as the percent of positive evaluations among those retailers with 1 to 25 units was only 38 percent for the month. Positive evaluations decreased the most among supermarket operators, from 71.8 percent in July 2004 to 58.3 percent in July 2005.

Just as the view of current business conditions has declined, so has the look forward at the next six months. The Index of future business conditions declined to 90.8 in July, compared to 97.2 a year ago. C-store operators were far more likely than their counterparts to have negative expectations. Once again, this may be attributed to gasoline, as the price per barrel headed upward of $60.

What’s next for retailers? James Russo, director of Retail Services, ACNielsen, suggests there is reason for optimism. Driven mostly by auto sales, the Department of Commerce’s July retail sales increased by 1.8 percent, so Russo reasons: “Overall, people are spending. Given that auto incentives are likely to stop, that cash should be spread out among other retailers in the coming months, which bodes well for successful back-to-school and holiday seasons for retailers.”

The VNU Retail Index is based on survey results received on a monthly basis from a panel of more than 500 convenience, drug, grocery, mass and specialty retailers across the country. The survey contains six questions calling for an appraisal of current business conditions and operational challenges, as well as expectations regarding business conditions, hiring and store count in the next six months.

If you are a retailer interested in joining the VNU Retail Index panel, please contact Debra Chanil, Director of Market Research, at [email protected].

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