VOL. 123 | NO. 223 | Thursday, November 13, 2008
Retailers With Strong Local Ties Report Losses
By Eric Smith
BELLWETHER: Shown is the exterior of a Macy’s store in Rancho Cucamonga, Calif. -- PHOTO COURTESY OF MACY’S INC.
More signs of economic woe appeared Wednesday with news of sagging sales from retail behemoths Macy’s Inc. and Best Buy Co., both of which have a significant presence in Memphis.
Macy’s reported a third-quarter sales decline of 7 percent because of slowing consumer spending and also cut its 2009 capital expenditures budget almost in half. Macy’s reported it lost $44 million, or 10 cents per share, in the quarter, after a profit of $33 million, or 8 cents per share, a year earlier. The company said sales fell to $5.49 billion from $5.9 billion a year earlier.
The Cincinnati-based retailer operates four stores in the area – Memphis stores in the Oak Court Mall, Wolfchase Galleria and Southland Mall, and a Collierville store in the Avenue Carriage Crossing.
Calls to the retailer’s Atlanta-based central division were not immediately returned.
Scott Barton, senior vice president of retail services for CB Richard Ellis Memphis, said one bad quarter is not something to be alarmed about, but clearly all department stores are under pressure in this economy.
“We’re seeing a lot of down shopping from Macy’s and Dillard’s to the Targets, Kohl’s, Stein Marts and Wal-Marts of the world – the discounters,” Barton said. “It’s really no surprise that they would have a big drop in third-quarter sales. The question is, how long does it last?”
Terry J. Lundgren, Macy’s chairman, president and chief executive, said Wednesday the company is prepared to handle the situation.
“Macy’s Inc. remains financially healthy, with strong cash flow, a solid balance sheet and ample borrowing capacity,” Lundgren said in a statement. “We are committed to continuing to aggressively manage expenses and inventories consistent with planned sales levels.”
Still, the reports come on the heels of other bad news in the retail landscape. Circuit City Stores Inc. recently announced that it would close 155 stores, including two in the Memphis area, and lay off about 8,000 employees nationwide. The company subsequently filed for Chapter 11 bankruptcy protection.
Circuit City is closing its newly opened Collierville store on East Shelby Drive and the Memphis store at 6491 Winchester Road. The company’s stores at 8045 Giacosa Place in Memphis and at 6680 Southcrest Parkway will remain open.
Circuit City’s chief competitor, Best Buy, saw sales drop 7.6 percent in October, the result of “rapid, seismic changes in consumer behavior (that) have created the most difficult climate we’ve ever seen,” a Best Buy spokesman said.
Richfield, Minn.-based Best Buy expects earnings per share between $2.30 and $2.90 for the fiscal year ending in February, down from a prior estimate between $3.25 and $3.40 per share.
The retailer forecast revenue between $43.7 billion and $45.4 billion, as well as a 1 percent decline in same-store sales, or sales at stores open at least 14 months.
Barton said Best Buy in the long run could see the benefits of added pricing power as Circuit City reduces its footprint and its market share. Best Buy has three stores in the Memphis area – one in the Wolfchase area, one on Winchester Road and one in Southaven.
But Barton warned that slow sales from anchor stores – like Macy’s, Best Buy or Circuit City – will result in less business for smaller retailers that peel customers from the big boxes.
“The anchors do drive traffic in malls, and if their traffic is down, unless you are a retailer that is a particular destination, then you’re probably going to feel a little bit of the pain too,” Barton said.
Danny Buring of The Shopping Center Group in Memphis agreed that the slowdown will have wide-ranging impact, especially on retail development, which Buring said will come to a “screeching halt” as retailers scale back the opening of new stores or choose second-generation space instead of building.
“If you’re not Wal-Mart or the grocery stores,” Buring said, “I think you have to be suffering to some degree.”
The Associated Press contributed to this report.