Retail Pricing Power Seems to Be on Mend
After a 2009 marked by heavy discounting and inventory liquidation, some retailers are starting to get their swagger—and pricing power—back.
On Friday, the Commerce Department is expected to say retail sales dipped slightly in February after a strong January increase, held back in part by unusually cold and snowy conditions last month. Yet sales are still likely to be up about 3% from a year ago, in contrast with the double-digit declines seen in the depths of the recession.
The recovery has been varied. Sectors such as housing and autos remain plagued by excess capacity, but more nimble retailers have fared better. Core retail sales, a measure that excludes gasoline, motor vehicles and building materials, are expected to rise 0.1% in February and remain just a hair below their 2008 peak.
In particular, the recent firming of consumer spending combined with last year’s heavy cost-cutting has many apparel retailers seeing margin growth—a bullish sign for future earnings.
Among retailers that sell goods like clothing, median operating margins shrank to 7.9% in 2008, according to UBS, but are expected to hit 11.2% in 2010—the highest since 2004. “Lean inventories, pent-up demand and better fashion should enable better full-price selling,” says UBS specialty retail analyst Roxanne Meyer.
