President Obama said Thursday (February 5) that the new economic stimulus bill would include some additional infusion of funds into the credit market. It is the retail sector that was the focus of bad economic news Thursday. Most major retailers struggled through the first month of the New Year as Americans are in a save and protect mode. Wal-mart was a lone bright spot in January earnings news, otherwise, the record low consumer confidence reported in January turned to low discretionary spending.

The news in retail ranged from bad to worse on a day that all saw another significant increase in jobless claims reported. Gap, Saks, and Children’s Place were among retailers that disappointed with worse than anticipated losses for the month. Macy’s and Limited Brands were among “pleasant” surprises that did not drop as much as anticipated, yet still saw steep losses.

Wal-mart rebounded from its weak end to 2008. The retail giant has benefited from other retailer’s suffering as consumers look for economic value on essential purchases. This is Wal-mart’s specialty. Some thought even the mighty Wal-mart was in trouble when it posted losses to end the year. However, the company seems to have picked up even more steam thanks to frugal shoppers and the closing of stores by competitors like Circuit City, who is closing all its US locations.

The companies that struggled the most during January are those that tend to sell more non-discretionary items. Estee Lauder had a 30 per cent drop in its fiscal second quarter earnings. The cosmetics giant joined other jewelry, cosmetics, beauty, high end fashion and apparel, and other companies that sell products above the price point many consumers can afford right now. Some company executives feel confident that shoppers are simply holding off on making larger ticket purchases, as opposed to completely turning away from their products.

One positive note according to some retail analysts and company leaders is that January is traditionally among the least important months for retailers. Following the usually busy holiday season from late November through Christmas, there is usually a let up in consumer spending. However, the strong drops in sales from the same month last year still show the sad state of the current economy.

With unemployment expected to jump to 7.5 per cent in the next report, and likely higher as 2009 progresses, retail problems may continue. Americans simply either do not have the money to buy, or are protecting against the potential for job cuts, layoffs, and companies going under. The current marketplace is essentially a battle of attrition as some retailers fall by the way side, leaving their customers behind to jump to surviving competitors. Starbucks has plans to continue to close some of its struggling stores in a consolidation move.

President Obama is urging Congress to move quickly to come to a resolution on the economic stimulus package that would send nearly one trillion dollars into the economy. Some dissenters of the proposals argue that portions of the stimulus won’t affect the economy for months, or years. Republicans have also argued against some of the “pork barrel spending” packed into the bill. For now, investors and Americans remain hopeful of something positive soon.

Market Recap

The Dow gained 106 points on Thursday while the NASDAQ and S&P were up 31 and 13 points. Wal-mart posted a gain for January though other retailers struggled. The dollar moved to nearly 91 Yen.

Neil Kokemuller
10:50 PM EST
Thursday, February 5, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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