NEW YORK - U.S. retailers, already challenged by high food and gas prices, got more bad news on Friday when government data showed the job market unexpectedly shrank last month, leaving consumers with even less money for nonessential shopping.
Debate over whether or not the broader U.S. economy is slowing was put to rest after a Labor Department report showed employers slashed jobs by the most in nearly five years. Data from January and December was also revised to the downside. Further troubling, the unemployment rate dipped last month as discouraged job-seekers threw in the towel.
For recession to be officially declared, it will still take two consecutive quarterly readings of negative gross domestic product. But there is no doubt that the slowdown that started in the housing industry has spread throughout the broader economy.
"No retailer is totally immune, whether you are luxury or the lowest of the low -- every retailer is affected in some way," said Michael Niemira, chief economist of the International Council of Shopping Centers.
Retail shares trading sharply lower on Friday ranged from luxury department store Nordstrom Inc., down nearly 6 percent at $32.95, to deep discounter Family Dollar Stores Inc., down almost 3 percent at $18.87.
While the job losses occurred in almost every sector and guaranteed that the American consumer will have less money to spend for everything from big-screen TVs to trendy footwear to home improvement goods, those who work at retailers were not spared either.
The retail sector slashed 34,000 jobs in February.
TRIMMING PAYROLL
CL King retail analyst Mark Montagna said in this tough environment, retailers are likely trimming payroll costs by limiting the hours of part-time workers. At the same time, companies such as Limited Brands Inc. and Coldwater Creek Inc. are scaling back their store expansion, he said.
So far this year, AnnTaylor Stores Corp., Talbots Inc. and Pacific Sunwear of California Inc. have all also announced plans to shut down some locations.
Yet cost controls and cutbacks may not be enough for some stores to weather a full-blown recession. Companies "need to be more promotional" to cater to increasingly cost-conscious consumers, Niemira said.
Too many markdowns, however, can sap away margins and punish a company's stock.
Teen apparel retailer American Eagle Outfitters Inc shares tumbled 17 percent on Thursday after the teen retailer gave a disappointing profit outlook and said it sees more markdown activity in the first quarter. Its shares were down another 3.6 percent on Friday.
It's not all gloom and doom on the retail front, however.
Some companies can benefit as the retail landscape sours. Discounters like TJX Cos Inc. and Ross Stores Inc., who buy excess merchandise from manufacturers at below-wholesale prices, can often get better goods as their higher-priced rivals cut back, Montagna said.
Year-to-date, Ross Stores shares are up more than 11 percent and TJX is up nearly 10 percent, while the Dow Jones U.S. Retailers index .DJUSRT has sunk 6.9 percent.
"They are benefiting from people trading down," Montagna added.
In addition, retailers, especially the discounters, can hold out hope that the rebate checks set to land in the wallets of low- to mid-income earners later this year will work their way into their cash registers.
In the past, some retailers, like Wal-Mart Stores Inc, have offered to cash rebate checks in the store as a way to attract customers," Niemira noted.
This year, stores might also need to offer some sort of promotion to save consumers money along with cashing the check, he said.
(Additional reporting by Brad Dorfman and Martinne Geller; Editing by Brian Moss)
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