Posted by Bill Kirk, CEO

Retailers should cherish the +3.0% same-store-sales (SSS) gains in June as the rest of Summer school, back-to-school and the first semester are going to prove VERY CHALLENGING FOR RETAILERS!!!  Here’s why:

So far in 2010, retailers have been up against very easy sales comparisons to last year when retail industry SSS averaged -4.5% – the worst ever.  So, the +3.8% pace so far this year is pretty good but not great since the +9% in March, when the Easter weather was the best in 20+ years, skewed the average.  But in the months ahead, those soft comparisons to last year become much more difficult with a +0.2% SSS trend last year in Q3 (Aug – Oct).  The simple math suggests we’re headed for flat to negative SSS trends in Q3 2010 and that’s before we factor in all the other hurdles below.

The next BIG TEST is the weather.  Last year, the nation had the coldest back-to-school/Fall season in 7 years with the Northeast the coldest in 12 years and some early, big, snow storms in October across the U.S.  This helped retailers post the much higher than expected sales gains in Q3 as consumers flocked to buy seasonal must have items to brave the elements.  The weather/sales pattern is more similar to 2006-2007 when we went from a cold Fall in 2006 (retail sales strong at +5.5%) to a very warm Fall and retail sales stumbled to just +1.8%.

Unlike last year, this Spring-Summer has been much hotter across the U.S. pushing Summer seasonal sales up earlier than last year when Summer heat didn’t even arrive until August in the East after the coldest June/July on record for parts of the Northeast.

The chart below shows WTI’s projections of a continued much hotter year-over-year pattern through early November!  Consumers have already bought all the air conditioners, fans, shorts, t-shirts and sandals they need, so now it’s all about a weather trigger to end the Summer mindset to spur those Fall purchases.  Other than a brief blip in September, the quarter ahead will prove to be very challenging weather wise.

So what else could possibly go wrong for retail sales this Fall – maybe a mid-term election year!  Ordinarily, presidential election years bring higher risk to Fall retail sales, but seldom does a mid-term do the same unless the economy is weak and consumer sentiment is weak.  A hot October with a hot election spells “F” for October SSS as we would expect the “CNN effect” on this year’s election to create some uneasiness.

Now lets throw in some disruptions to store traffic from an active hurricane season.  As the blog posts below suggest, WTI and everyone else expects a parade of storms and land falling hurricanes from middle August to October.  WTI research suggests land falling hurricanes can cost the industy 1/2% to 1% in total SSS.  We had no impacts last year, so this will be a more disruptive Fall.  The only winnners in a Summer-Fall like this might be the home centers that benefit from an extended outdoor season.

What about consumer confidence?  Historically, the consumer confidence index correlates to a pretty respectable 42% relationship to July retail industry SSS – higher confidence, higher sales…lower confidence lower sales.  Since this index is again plunging  back to 2009 levels, things don’t look good for July. But this index shows less and less importance through the Fall with the correlation falling to 30% in August, 12% in September and 4% in October as the weather is the main driving factor to retail sales.

Gas prices don’t historically have much impact on retail sales unless they’re over $4, but this too is up 10% over last year, so it certainly doesn’t help put anymore money in consumer’s pockets.

The cooling season has been record setting for parts of the country with the Northeast off to the hottest Summer in decades.  Residential cooling bills are up 30% to 150% further impacting discretionary income.  Northeast consumers are just about to get those first shocking bills in the mail!

So what do consumers have to say about spending this Fall?  According to Marketing for Moms, a June 2010 survey suggests they’ll cut back by 12% on back-to-school items this year, especially on clothing.

All in a all a “D-” might be wishful thinking this back-to-school/Fall season!

Posted by:  Bill Kirk, CEO

U.S. JUNE 2010 SUMMARY:  It was the 2^nd hottest June in 18+ years for the nation as a whole with 82% of the U.S. trending warmer than a year ago along with 1,506 record high temperatures.  The Northeast had the greatest change toward much hotter weather benefiting strong double and even triple digit sales gains for items like AC, fans, auto batteries, irrigation, pest control, summer apparel, cold beverages, sun care, etc.  In the West it was a different story with the coldest June in 11 years for the Northwest along with the wettest conditions in over 18 years putting a damper on Summer category sales (see regional summary chart below):

Memorial Day week was by far the best of the holidays with the warmest holiday in 18+ years driving strong demand for must have seasonal items.  Every weekend day in June trended more favorable than a year ago for the nation as a whole.

The tropics heated up early with the earliest hurricane (Alex) in 15 years.  South Texas was within a 100 miles of this hurricane bringing flooding rains to parts of Texas and winds as high as 66 mph. 

Overall, the weather was a huge plus for retail industry same store sales (SSS) which came in at +3% according to ICSC.  Luxury did the best at +8.8% followed by Department Stores (folks flocking to the malls to escape the heat) +5.9%, Clubs +4.0%, Discounters +2.0% and the laggards Drug Stores +0.8%.  While consumer confidence plunged to 52.9 in June (down from May), it was still slightly better than last year when the index stood at 49.3, so this was a neutral factor for retailers.   Gasoline prices were also a neutral factor at +4% higher than levels a year ago.  The big positive was the very easy comparisons to last year when Retail Industry SSS were the worst ever at -5.1%.

U.K. JUNE 2010 SUMMARY: June trended as the 3^rd warmest in 17+ years for the U.K. Temperatures during the first 2 weeks of the month trended warmer than LY, while the last 3 weeks of the month turned cooler y-o-y.  Although warmer than normal, the mild temperatures of the final 2 weeks of June 2010 were no match for the blistering heat wave experienced during the end of June 2009, thus, the cooler y-o-y trends.

For the 3^rd month in a row, precipitation trended both drier than normal and last year as this was the 4^th driest retail June in 17+ years. Although drier conditions benefit footfall and outdoor products, this was not good news for the rising threat of a drought, particularly in North West England where precipitation has been the least in 17+ years for the first 6 months of 2010.

Although the 1^st week trended warmer than LY, the week actually began on a cool and soggy note, putting a damper on categories like picnic foods, grilling, pool supplies, sun care and Summer apparel over the Summer Bank Holiday weekend. Late week warmer y-o-y weather stuck around into the 2^nd week which should have provided a boost for warm weather categories. The week prior to Father’s day trended both cooler than LY and normal, dampening demand for Summer related products, however, a warm-up by the weekend was favorable for last minute gift purchases for Dad. Although temperatures turned milder for the final 2 weeks of the month, demand for volatile hot weather categories like air conditioners, fans and car batteries likely saw a dip as temperatures were not as scorching hot as LY.

G-20 JUNE 2010 SUMMARY:   It was a warmer month across much of the Northern Hemisphere, but cooler for the start of Winter across much of the Southern Hemisphere.  Russia had the greatest change toward much hotter weather driving demand for consumables.  Rainfall was excessive for the month across the G-20 with widespread flooding in SE China, SE Bangladesh, Southern France and NE Brazil.  Drought was most extreme in Israel where conditions are the driest in 90 years and the driest in 20 years across Thailand.  The drought in Thailand is having a major impact on crop yields and rice production which is expected to be well below average.  The collapse of El Nino is now giving way to a La Nina event (cooling of the Pacific Ocean) which continues to keep overall global tropical activity well below average – lowest levels in 30 years.  However, the two areas with much warmer Ocean water temperatures are off the U.S. Gulf/Atlantic coastline and across Indonesia.  This will create very favorable conditions for an active season in those regions.  The maps below show temperature and precipitation trends vs last year.

U.S. Summary Report

U.K. Summary Report

G-20 Summary Report