Although major U.S. chains reported improved holiday sales in 2014, many remain cautious as 2015 got underway.
The holiday quarter saw profits that were collectively up 10.9 percent – but the outlook for this calendar year may not be so bright. According to Retail Metrics, multiple major chains reported in with lower profit forecasts than previously estimated. Their summary included reports from Target, Macy’s, Home Depot, Wal-Mart and Nordstrom.
Lowering forecasts. Even discount retailer TJ Maxx lowered its full-year forecast and stated that the dollar being strong, their plans to match Wal-Mart’s low prices, and the increase of entry-level wages to $9 per hour will significantly cut into profit margins. Retailers JC Penney, Kohl’s, Best Buy and Staples haven’t yet reported in at the time of this writing.
Even though the U.S. economy is recovering, it has been doing so with both leaps and setbacks. Retailers initially thought that the lower gas prices toward the end of the year would free up money that would go toward spending more money at their stores. However, as National Retail Federation’s chief economist Jack Kleinhenz noted, actual spending patterns were quite different.
“The extra money coming from lower gas prices may be going toward savings, paying off debt or spending on services rather than retail goods,” he said.
Spending on services. Although there was a lot of demand for retail goods in the post-recession years, now baby boomers are focusing their spending on services. According to Kleinhenz, more frequent haircuts, manicures, lawn care and other ongoing services seem to be more appealing from a spending point of view.
With slower sales across the board, including at the stalwart Macy’s, the retail market is starting to rethink its approach. Macy’s is making some acquisitions that may point the way for big box retailers in the future. It acquired a new beauty and skin care line to appeal to younger buyers, as well as off-price retail lines that may bolster future sales. Other retailers are likely to follow suit with new lines and lower prices to attract customers.