Retailers Report Disappointing Sales in March

Submitted by
CalculatedRisk on Thu, 04/06/2006 - 4:24am (11 comments)
edhopper wrote on Thu, 4/6/2006 - 6:14 am

The housing bubble is collapsing. Consumers no longer have the home equity ATMs. What will be the excuses in April and May.

cm wrote on Thu, 4/6/2006 - 7:43 am

No, no, no, no, no. It's the weather, dude. It's only consumer "prosperity" when the trend is up.

cm wrote on Thu, 4/6/2006 - 7:45 am

In unrelated news, Premium gasoline over $3 at most stations in the area, and over $2.90 at all I've seen.

Holly W. wrote on Thu, 4/6/2006 - 9:22 am

But I thought consumer confidence was at a new high ... why does all the economic news always seem so contradictory?

vader wrote on Thu, 4/6/2006 - 12:02 pm

Rumors of lots of jobs-I know because I am looking and being told there is lots.

BUT the ATM has run dry and there is no money to spend.

Results in lots of optimism, but no sales.

Stormy wrote on Thu, 4/6/2006 - 2:27 pm

Between China and the Fed, inflation is down and still the consumer is not happy. Now he wants good weather, too?

You just can't please that cash-flushed, plastic-ladened consumer. Even when times are booming, he is fickle.

dryfly wrote on Thu, 4/6/2006 - 2:51 pm

One of the companies I sell for is already planning to play defense anticipating tougher times...

They make parts for all kinds of things (now increasingly made overseas). They have always stayed away from core automotive but decided they needed the 'cash fix' provided by a large auto OEM contract... so they are all but buying one (bidding low) as I write this.

It sounds crazy but the industry they are in is so capitol intensive they need to keep a base line cash flow even if it is very low margin.

The plan is if the economy tanks automotive always stays up somewhat... meaning that sales might decline 25-30% and destroy profitability but never goes to 'zero percent' like what happens in smaller consumer products & agricultural equipment. I've been through two or three recessions & so far this has always been the case.

So they are trying to ink this 'back stop' account just to be sure they have enough biz in the plant to carry them over the next few years REGARDLESS of what happens. There is no way they will make money on this order but will keep the lights on no matter what.

I was told they decided this plan last month when the owners & management sat down to review strategy going forward. I was stunned because they haven't done this since the 80s recessions (bought work).

It won't be my account - I sell into companies that 'hopefully' will provide the 'profit' these accounts won't. In some ways that puts more pressure on me but also tells me this manufacturer won't likely be shutting down on me either... always a risk today with domestic manufacturers.

Two serious risks with this strategy:

(1) The economy doesn't tank & they discover they've over sold the factory and the hardest contract to get out of will be the low margin one (penalties for non-performance... price you pay for almost guaranteed biz). That has happened to them before... coming out of the 1980s recessions for example.

(2) The backstop has holes in it... maybe the work isn't there after all... Or maybe the work is there but the customer files & you get paid nothing. Considering Delphi & Dana recently that is a possibility.

I guess the reason I posted this was to say I wasn't surprised by the contradiction of confidence levels & sales numbers... it is the same story we saw before except in reverse... high sales coupled to low confidence levels. People are confused & don't know what is going to happen... including the people running the companies where we all work.

cm wrote on Thu, 4/6/2006 - 2:58 pm

dryfly: Yup, that sounds scary. Well, so it is in capital-heavy business -- you cannot send your equipment, buildings, and warehouses full of stuff on temp layoff, and then hire them back later.

vader wrote on Thu, 4/6/2006 - 5:56 pm

dryfly

I know where I get my depressing info, but where are they getting theirs?

dryfly wrote on Thu, 4/6/2006 - 6:31 pm

vader - they are looking at their own order book & forecasts... not at models or econometrics. What's worse is this industry is very close knit & from what we are hearing other companies are doing even worse.

Of their 5 largest customers 3 are in bankruptcy (two reorganized & one liquidated). A few others were recently acquired & plants closed. It has been one body blow after another.

Their stuff goes into small engines, power equipment, lawn & garden, automotive power-train, appliances - etc. The companies making this stuff are getting hammered by low cost off-shore competition.

So they decided it was time to hunker down. I think it was the right move.

Jim A. wrote on Fri, 4/7/2006 - 10:42 am

"Technical service, Krapgar Bank, may I help you?"

"My equity ATM seems to be broken! When I try to take out my money, all I get is an 'insufficient equity' message."

"Have you tried granite countertops?"

"Yes, we even added a subzero refrigerator and we still can't get any money out."

"Ah, here's your problem. You're effed. Take the box the refrigerator came in and put it out on the curb. That's your new home. Our men will be by soon to repo your house. Have a nice day."

Login or register to post comments
Syndicate content