Department stores may take longer to bounce back from the recession as consumers slowly begin to reopen their wallets but remain selective about where to spend their discretionary dollars, says an analyst.
Toronto-based Sears Canada i(TSX:SCC) s one example of a department store that’s still suffering in the current economy, even though the recession is said to be ending and consumer spending is creeping back slowly.
The retail chain, which sells everything from sofas and stoves to shirts and sleepwear, reported Wednesday that sales slipped 12 per cent and profit dived 20 per cent in the second quarter compared to last year. Sears blamed tighter consumer spending and colder summer weather for cooler sales.
Retail analyst John Winter, president of Toronto-based retail consultants John Winter Associates Ltd., said the problem is also the department-store model of trying to offer all things to consumers, which can weigh it down when economic times are tough.
“They have to wait more than other types of stores for a general improvement in the economy because they are all things to all people,” said Winter.
A specialty store that sells just clothing, or shoes, has an advantage because it is smaller scale and therefore more nimble when reacting to an economic downturn, he said.
Winter believes Sears is doing all the right things to react to the downturn, including cutting costs and its workforce as well as slashing prices and offering special promotions to try and lure customers.
“But, because they are so broadly based, they have to wait for a strong improvement in the economy,” Winter said.
Sears, which is the only major Canadian department store chain that is publicly traded and reports its earnings each quarter, said its profit fell to $49.1 million or 45 cents per share for the quarter ended August 1. That was down from year-earlier net earnings of $61.5 million or 57 cents per share.
Sales sagged 12 per cent to $1.25 billion compared with $1.42 billion a year ago. Same-store sales, or sales at locations that have been open for at least a year, dropped 10 per cent during the quarter.
The recession and rising job losses have impacted consumer spending in many parts of the retail economy, especially autos and hard goods. In addition, softer home sales have cut into demand for appliances such as washers, refrigerators and stoves that Sears sells through its Kenmore and other brands. The company is also a major retailer of Craftsman tools, used in the home and on construction sites.
“Revenues were negatively impacted by lower consumer discretionary spending as a result of the recession and the cool summer that affected most of Canada except British Columbia,” Sears Canada president Dene Rogers said in a release.
“We managed both margins and expenses to maintain profitability. As a result, Sears operating (earnings before interest, taxes, depreciation and amortization) performance to last year remains among the best in the Canadian retail industry.”
Winter believes results at stores such as The Bay and Zellers, which are both owned by privately held Hudson’s Bay Co., are likely down as much or even more than Sears in the quarter.
He said the department stores are losing some ground to discounters, such as Wal-Mart Canada, a division of Wal-Mart Stores Inc. (NYSE:WMT), the world’s biggest company, which is also being hit by the recession, although less hard.
Arkansas-based Wal-Mart Stores said last week that its second quarter income was flat compared to a year ago at US$3.44 billion and revenue fell by 1.4 per cent, to US$100.08 billion.
Wal-Mart beat expectations, as did a handful of other U.S. retailers even though their sales and profits were also down year-over-year.
Home Depot Inc., the biggest U.S. home improvement retailer, said its second-quarter profit fell seven per cent to US$1.12 billion and revenue dropped nine per cent to $19.07 billion, as the U.S. housing slump continues.
Target Corp., the second-largest U.S. discount chain, said profit fell 6.3 per cent to US$594 million and revenue was down 2.6 per cent to $15.07 billion.
More than 40 per cent of Target’s revenue comes from the funky clothing and home accessories it advertises on television and in magazines, but the discounter has expanded into the food business as a way to drive more shoppers into its stores.
Sears Canada has about 33,000 employees and a network of 196 corporate stores, 193 dealer stores, 41 home improvement showrooms and more than 1,800 catalogue merchandise pick-up locations.
The company, controlled by U.S. retail giant Sears Holdings Corp. (Nasdaq:SHLD), also operates 108 Sears Travel offices and a national home maintenance, repair, and installation network.
In Wednesday trading on the TSX, Sears Canada shares fell 26 cents to $20.74, a drop of 1.2 per cent.