Jan 11, 2010

U.S. retailers face tough road to recovery in ’10By Martinne GellerReuters.com

New York – U.S. retailers made big strides in profitability during the 2009 holiday season even if consumers warmed up only slightly to spending, but the sector’s key test in 2010 will be to keep margin growth up if shoppers retreat.

Last week, U.S. chain stores posted a larger-than-expected rise in same-store sales for December, the fourth straight gain after a year of monthly declines in the wake of the downturn. Chains such as Macy’s Inc, Nordstrom Inc, TJX Cos and Aeropostale Inc increased their profit forecasts, as a strategy of lowering inventory levels in 2009 that helped them avoid deep discounts.

Industry experts say monthly sales data should continue to show improvement off year-ago declines for much of 2010, but that shoppers will not spend freely again until unemployment and home values recover. With no real bump in consumer demand, they see margin growth constrained by the fact that most stores already tightened their belts as much as they can.

“At some point your margins won’t expand anymore, and if the top line doesn’t pop back, you’re probably going to be in a holding pattern,” said Doug Conn, a managing director at investment bank Hexagon Securities.

“That’s probably the big thing to watch for in 2010 — if that does happen, and there is no top-line growth, we may see a little bit of flatlining,” he added.

The National Retail Federation (NRF) is hosting its annual expo in New York this week, gathering thousands of retailers as well as vendors of services like staffing and consulting.

If attendance at the industry’s biggest trade show were a proxy of its health, NRF spokesman Scott Krugman said things are looking up, with retailer attendance 27 percent higher than last year. Attendance overall, he said, is tracking at January 2008 levels.

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