Pri Quartely Retail Analytics
P.O. Box 158
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Phone: 630-920-1844
Email: skp@plattretailinstitute.org
www.plattretailinstitiute.org
Volume Four
Number One
April 2006
PRI QUARTELY RETAIL ANALYTICS
“BRINGING RESEARCH TO RETAIL”
I. BUSINESS OUTLOOK:
BUSINESS INDICATORS
RETAIL INDICATORS
II. MAJOR RETAIL SECTOR TRENDS:
BUILDING MATERIALS, GARDEN AND SUPPLY STORES
FOOD AND BEVERAGE STORES
HEALTH AND PERSONAL CARE (DRUG) STORES
CLOTHING AND ACCESSORY (APPAREL) STORES
GENERAL MERCHANDISE STORES
DEPARTMENT STORES
III. RESEARCH NOTES:
RETAIL MICRO-MARKETING: STRATEGIC ADVANCE OR GIMMICK?
By Cristina Ziliani, Universita di Parma, Italy
IMPULSE BUYING: MODELING ITS PRECURSORS
By Sharon E. Beatty, The University of Alabama and
M. Elizabeth Ferrell, Southwestern Oklahoma State University
PRI’s mission is to initiate and secure the funding of studies on specific retail business
issues. PRI functions as a conduit, bringing together retail executives with leading
researchers. The genesis of the Retail Institute is the recognition of the wealth of
knowledge being produced at the University level, on the one hand, and the need for
more advanced yet practical business research and insight at the retail level, on the other.
It is, therefore, the Retail Institute’s main objective to serve as a knowledge bridge
between the University and retail industry and its related vendors. It will achieve this
objective through the commercialization of the resources of its Research Fellows and
University relationships.
This report is not to be reproduced or published, in any form or by any means, without
the express written permission of the Institute.
Copyright (c) PLATT RETAIL INSTITUTE 2006. All rights reserved.
Hinsdale, IL
www.plattretailinstitute.org
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I. BUSINESS OUTLOOK
BUSINESS INDICATORS
Last year, the U.S. economy grew by 3.5%, versus 4.2% in 2004. The fourth quarter of
2005 was especially weak, as a result of hurricanes and high oil prices, growing at a 1.7%
annual rate (see chart 1). First quarter 2006 GDP advanced at 4.8%, which is the
strongest in over two years. However, this rate of growth is not sustainable.
Chart 1.
We look for a slowdown in U.S. economic activity for the balance of this year, but do not
believe that this easing will be severe. Buttressing this view, in February the Federal
Open Market Committee advanced its revised opinion for real GDP growth at the low
end of 3.0% to 3.5% for 2006. The Index of Leading Economic Indicators also indicates a
moderation in economic growth, but not a recession. The LEI fell 0.1% in March after
falling 0.5% in February. This is the first time that the LEI has declined in two
consecutive months since 2001. On a quarterly average basis, the LEI in the first quarter
of 2005 was up only 1.5% on a year-over-year basis. Since the high achieved in the first
quarter of 2004, growth in the LEI has been trending lower (see chart 2). The Chicago
Fed National Activity Index came in at +0.37 in March, versus a February reading of
+0.19. A reading above zero indicates above-trend growth. Yet the three-month moving
average index fell to +0.29 in March from +0.36 in February, well above its historical
trend growth, but again indicative of moderating activity (see chart 3).
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Chart 2.
Source: Wachovia
Chart 3.
Overall trends in employment, housing, and inflation continue to provide further
guidance into the overall direction of the economy, consumer spending, and retail sales.
Job creation and wages are growing at their fastest rate in several years (see chart 4). This
is good news for consumers maintaining a consistent to slightly upbeat level of spending.
On the other hand, the housing market is slowing rapidly, and this will have a negative
impact on spending (see chart 5). This is because equity extracted by homeowners
powered spending by consumers between 2001 and 2004, evidenced by consumer
spending exceeding incomes, while the personal savings rate was negative. That is, the
money had to come from somewhere and, to a great extent, it was coming from the U.S.
housing boom, which is now slowing. The recently released March New-Home sales gain
of 13.8%, however, was a surprise. On the inflation front, recent spikes in oil prices will,
once again, impact consumer spending (see chart 6). The negative impact of high energy
prices upon consumers and the economy was demonstrated in the fourth quarter of 2005.
Consider that for the twelve months ended February 2006, the energy component of the
Consumer Price Index rose by 20%, on top of a prior year twelve month rise of 10%.
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Chart 4.
Chart 5.
Chart 6.
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RETAIL INDICATORS
During 2005, retail sales grew by 6.1%, following a strong 7.0% gain in 2004. The
National Retail Federation looks for retail sales to slow during 2006 to 4.7% (see charts 7
and 8). The recently released Federal Reserve Beige Book states that “the majority of
Districts cite improving retail sales overall.”
Retail sales in March were solid, up 0.6%, versus February’s drop of -0.8%. For the first
quarter, retail sales were up 13.4%, a favorable reversal from the 1.9% rate recorded in
the fourth quarter of last year (excluding autos, retail sales rose 11.1% in the first quarter
versus 7.8% in the fourth quarter). Excluding volatile auto, gas and building materials,
retail sales increased at an annualized rate of 8.8% for the trailing three months and 7.5%
for the trailing twelve months. We continue to look for a second-half slowdown but, as
noted, do not believe that it will be severe. To illustrate this, the Bank of Tokyo-
Mitsubishi Weekly Leading Indicator of Non-Auto Retail Sales at April 20, 2006 was up
+0.9% in latest week, but year-on-year momentum is slowing (see chart 9).
First quarter consumer spending grew a strong 5.5%, versus an increase of 0.9% during
the fourth quarter (see chart 10). Looking into the second quarter, higher oil prices, rising
interest rates, and weakness in the housing market will drag consumer spending.
Forecasts call for consumer spending to drop to 2.6% in the second quarter. First quarter
estimates for personal income, which correlates with spending, are expected in the 5.4%
range, versus an increase of 4.6% during the fourth quarter (see chart 11). Forecasts call
for personal income to increase slightly to 5.7% in the second quarter.
Chart 7.
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Chart 8.
Chart 9.
Source: Bank of Tokyo- Mitsubishi
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Chart 10.
Chart 11.
Overall U.S. capital spending grew by 8.6% in 2005, versus 9.4% in 2004. 2006
estimates for capital spending are in the 6.5-7.0% range. First quarter 2006 capital
spending came in at a strong 14.3% versus 4.5% in the fourth quarter, and the March
Durable Goods Orders advanced by 6.1% (3.0% net of aircrafts versus a -0.8% drop in
February). According to the recently released Annual Capital Expenditures: 2004 by the
U.S. Census Bureau, capital spending by retailers grew by 8.9% in 2004, including
buildings and equipment, versus 11% in 2003. Fueling these investments are gains in
corporate after-tax profits.
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On the surface, the strength in corporate after-tax profits should bode well for U.S.
capital spending in 2006 in general, as well as for the retail sector. Yet the place of
capital investment by U.S. firms is showing a distinct overseas flavor. For example,
manufacturing firms have reduced capital spending at home, while increasing their
capital commitments overseas. Since most retailers do not invest heavily overseas,
viewing general trends in capital spending may be a bit misleading as to the direction of
retail capital spending. A better indicator may be found by looking at large retailers’
after-tax profits. The most recent data available from the Census Bureau is from the third-
quarter of 2005 (see chart 12). For the first half of 2005, retail after-tax profits trailed
2004. This may well indicate that retail capital spending gains for 2006 will trail those
experienced in 2004, as well as lag the general overall economy.
Chart 12.
Source: Census Bureau
II. MAJOR RETAIL SECTOR TRENDS:
BUILDING MATERIALS, GARDEN AND SUPPLY STORES
Sales rose 1.2% in March. On an annualized rate, sales are up 39.3% for the trailing 3-
months and are up 17.9% for the trailing 12 months.
FOOD AND BEVERAGE STORES
Sales were flat in March. On an annualized rate, sales are up 3.0% for the trailing 3-
months and are up 4.2% for the trailing 12 months.
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HEALTH AND PERSONAL CARE (DRUG) STORES
Sales rose 0.8% in March. On an annualized rate, sales are up 7.6% for the trailing 3-
months and are up 6.9% for the trailing 12 months.
CLOTHING AND ACCESSORY (APPAREL) STORES
Sales were flat in March. On an annualized rate, sales are up 5.6% for the trailing 3-
months and are up 6.6% for the trailing 12 months.
GENERAL MERCHANDISE STORES
Sales rose 0.1% in March. On an annualized rate, sales are up 7.6% for the trailing 3-
months and are up 6.4% for the trailing 12 months.
DEPARTMENT STORES
Sales fell -0.1% in March. On an annualized rate, sales are up 2.5% for the trailing 3-
months and are up 0.4% for the trailing 12 months.
AUTOS
Sales rose 1.6% in March. On an annualized rate, sales are up 11.7% for the trailing 3-
months and are up 3.3% for the trailing 12 months.
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III. RESEARCH NOTES
RETAIL MICRO-MARKETING: STRATEGIC ADVANCE OR GIMMICK?
International Review of Retail, Distribution and Consumer Research, October 2000
By Cristina Ziliani, Universita di Parma, Italy
This paper advances that an in-depth understanding of the consumer is at the core of
retailing. Yet large-scale, mass retailers lose touch with their customers. Micro, rather
than the mass-marketing predominately practiced today, serves to address this. Micro-
marketing is defined as the “orientation of retailers to measure and respond punctually to
both the spatial and the behavioral complexity of their market, facilitated by information
technology.” Micro-marketing attracts customers that are more likely to be loyalty-prone
by increasing satisfaction, trust, and barriers to exit. Loyalty programs, such as frequent
shopper programs, are an example of micro-marketing. Yet the retailers analyzed in this
study were found to have failed in collecting and analyzing available loyalty derived data.
Thus, the author concludes that most loyalty programs only address customers that are in
the store and fail to match this information, for example, with merchandising selections at
the stores. Stated another way, most retailers implement such programs on only a mass
basis (as differentiating between card holders and non-card holders), but fail to leverage
such information to reach deeper into customer clusters and categories. Such programs
are mere enablers, but fail to reach their potential, which rests in the information
produced and strategic relevance thereof. Therefore, the ability of a retailer to interpret
and translate this type of information into appropriate actions will, it is advanced, result
in building customer satisfaction and emotional loyalty.
IMPULSE BUYING: MODELING ITS PRECURSORS
Journal of Retailing, Volume 74, 1998
By Sharon E. Beatty, The University of Alabama and M. Elizabeth Ferrell, Southwestern
Oklahoma State University
The researchers advance a model for understanding what drives consumer impulse
purchases, and discuss how a retailer can benefit from leveraging this knowledge. They
define an impulse purchase as an “immediate purchase…which behavior occurs after
experiencing an urge to buy, and it tends to be spontaneous and without a lot of
reflection…” According to the authors, in-store browsing by consumers (those who lack
an immediate intent to buy) is central to impulse buying. That is, the longer a shopper
browses, the more stimuli they will encounter, which results in a desire that can lead to an
impulse to purchase. Physical proximity to the product to satisfy this urge is important.
For a retailer, impacting in-store browsing time and a consumer’s feeling of money
availability (i.e., easy credit), creating positive shopping experiences, and targeting
promotions to high impulse and recreational shoppers will result in more impulse sales.
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This concept is illustrated as follows:
(Our research notes are published monthly, and can be found on the National Retail
Federation’s website at: http://www.nrf.com/RetailResearch/View.aspx).
______________________________________________________________________
Copyright (c) PLATT RETAIL INSTITUTE 2006. All rights reserved.
Although the information in this report has been obtained from sources that the Platt Retail Institute
believes to be reliable, we do not guarantee its accuracy, and such information may be incomplete or
condensed. All opinions and estimates included in this report constitute our judgment as of this date and are
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