Retailers Strike Back at the Sluggish Economy
Over the past three and half years, the growth rate in U.S. consumer spending has averaged a dismal 0.2 percent when adjusted for inflation. According to Morgan Stanley (NYSE:MS), consumer spending is the weakest in the post-World War II era. While the unemployment rate is edging lower, wage growth is straining consumers. In response, retailers are focusing on ways to win over consumers.
Wages for blue-collar workers over the past year declined 12 cents from the previous year, representing the biggest decline since 1980, according to the Bureau of Labor Statistics. As a result, consumers are comparing prices more than ever. Earlier this week, Target (NYSE:TGT) sent a letter to vendors suggesting that suppliers create unique products that can only be found in Target stores. Target hopes that unique products will prevent show-rooming. Brick-and-mortar stores such as Target, Best Buy (NYSE:BBY), Wal-Mart (NYSE:WMT) and even Barnes & Noble (NYSE:BKS) are often the victims of show-rooming, which is when customers come into a store to see and test a product in person, but end up purchasing it from an online retailer like Amazon (NASDAQ:AMZN) at a cheaper price.
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On Wednesday, J.C. Penney (NYSE:JCP) revealed its new plan to attract customers and become America’s favorite store. In a presentation titled “In Praise of Fresh Air,” Penney’s new CEO, Ron Johnson, laid out details that the company will take over the course of the next few years to transform the shopping experience at stores. The plan includes fair and square pricing with monthly promotions, launching a new Penney brand identify and boutiques-within-a-store. J.C. Penney is also welcoming back television personality Ellen DeGeneres as a new brand partner. DeGeneres worked at J.C. Penney in her teens as an associate.
The former Apple Inc. (NASDAQ:AAPL) executive’s 90-minute presentation received a large amount of hype. William Ackman, the retailer’s largest shareholder, called it the most important day for retailing in 25 years. However, investors were not as excited. Shares closed lower on Wednesday as senior consumer analyst Liz Dunn explained, “The plan isn’t necessarily ground-breaking. Anyone with a mind could have assessed that there needed to be a change to the stores, pricing strategy and marketing.” Although the presentation failed to impress, Penney shares surged more than 14 percent today after delivering a favorable 2012 profit outlook. The company expects adjusted earnings per share to be at least $2.16 for the fiscal year, well above estimates of $1.60 per share.
As the economy continues to remain sluggish, companies will be forced to reinvent themselves and take measures to protect profits. Macy’s (NYSE:M) announced earlier this week that is is suing Martha Stewart Living Omnimedia Inc. (NYSE:MSO) in order to block its new licensing deal with J.C. Penney. Furthermore, Walmart is breaking its 30-year tradition started by founder Sam Walton by pulling greeters from the midnight shift. A Walmart spokesman indicted the company has been moving greeters on the third shift to other jobs for six months. The company sees the move as a cost cutter. Sales had declined at Walmart for over two years until the quarter ending last October.
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