Summer trends in US retail

Shorts, T-shirts and swimwear were among the hottest selling merchandise purchases for May, as people look to spend more time outdoors. The recent weakness in consumer spending resulted from the unusually cold weather lasting into the start of spring. Global mall trends have been strong, once again showing positive year-over-year retail traffic trends. Recently, more traffic at shopping malls also helped with the increase in merchandise purchases for Memorial Day and summer.

Exhibit 1: Thomson Reuters Same Store Sales Index Trend

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Increased discounting to attract shoppers

The discount sector has the highest SSS estimate for May, at 5.3%, as US consumers continue to cut expenditures. Within the sector, Costco has the highest estimate, at 5.5%. Costco is expected to benefit from increased membership fee revenue. The other company in this sector is Fred's, with an SSS estimate of -0.8%, partly due to a shift towards generic drugs hurting pharmacy sales.

Increased discounting is rapidly evolving. Top retailers were out in full force for Memorial Day with their best sales. Gap's "Red Bright and Blue" event gave shoppers up to 40% off merchandise. Retailer Zumiez, offered 'Buy One, Get One ½' off promotions. L Brands (Bath & Body Works, Victoria's Secret), delivered some of the best holiday giveaways while apparel retail store, The Buckle offered $5 beach towels to consumers for using their credit card.

The apparel sector

The apparel sector is expected to show a slight decrease in SSS growth, at 3.4%. This compares with 3.6% a year ago. Within apparel, Gap Inc has the highest SSS estimate at 4.1%. Gap's Old Navy Global division is expected to drive SSS growth, with its 5.8% estimate, while analysts expect the Banana Republic Global division to lag, with 1.2% growth in SSS. Stein Mart has the lowest estimate within the apparel sector at 2.0%.

Drugstore sector

Due to increasing healthcare costs in recent years, analysts expect prescription revenues to suffer from increased market share of generic drugs. Due to comparable cost savings and demand for lower priced generic drugs that offer effective treatment alternatives for consumers, medical professionals favour them. Today, almost half of all prescriptions are filled with generic drugs.

The drugstore sector was expected to have the weakest SSS growth, at 1.8%. However, Walgreen reported its same store sales results and beat its 1.8% estimate with a 2.8% increase. Both front end and pharmacy sales were stronger than analyst estimates, although Walgreen stated that the increased proportion of generic drug sales caused a 2.3% point negative impact on overall same store sales.