The shape of things to come

On looking through the February comp. store sales figures report just released by US retail investment house, Financo, there is a clear picture emerging. Firstly, it goes without saying that the figures show the dire state of US retailing generally. The Specialty Apparel sector was down 2.3% in February whilst the department store sector was down a massive 11.3%. Some of the individual stories to be told within the figures make the blood go cold - Saks down a thumping 26% on the month and Neiman Marcus down 20.9%!

However, US consumer are clearly voting with their wallets because the discounters emerge from the comp. store figures as even stronger performers. There is a consistent pattern now to this as we are seeing in other markets around the world. The discount sector overall recorded a 1.2% growth with Wal-Mart picking up the pace again with 5.1% monthly sales increases, 3% at Costco and an amazing 8.2% at BJs Wholesales Club.

The other standout numbers comes from the other sector holding up around the world - the young fashion market. West coast fashion and music company, Hot Topic, put on 10.8% in February.

Its being said that retail boardrooms have been reappraising their markets and their businesses again in the last few weeks as executives see another shift occurring. Another report out this week, Mckinsey’s monthly global executive survey on economic expectations, also made for interesting reading. According to their survey, executives told Mckinsey that, despite regarding the economic conditions as very bad, they did not now expect them to get any worse. This is the first time for many months that this response has been recorded and many executives stated that they are now taking long term actions to cope with the new economic landscape.

Its an important psychology - to feel as if you can now face just about anything your market or your economy can throw at you. In talking to people close to those private equity funds that have protected their cash and existing investments, they too are beginning to sniff the air and detect that although company valuations may not have bottomed-out yet, the time to move in and make acquisitions again is probably very close.

So, by the second half of this year, although we may not see consumer spending recovering, we may start to move from seeing retailers collapsing through lack of bank support and instead see the return of M&A as retail begins to restructure and consolidate.