VNU Retail Index: Merchants' Outlook Wilted

NEW YORK -- Despite a variety of promising economic indicators, retailers have clearly been feeling the heat, and it's wilting their outlook on business. The latest results from VNU's monthly Retail Sentiment Index show retailers' confidence in both current and future business conditions continues to decline.

The latest Index is based on results of a survey of retailers across trade channels conducted in July. The month was likely the hottest on record since 1895, according to Wayne, Pa.-based Planalytics Inc, which advises companies on weather trends. Planalytics estimates that weather-driving retail demand was 14 percent higher in July 2005 than during the cooler-than-normal July 2004.

The latter part of the second quarter brought with it some positive economic news. Total retail and same-store sales were up, while business investment, manufacturing and housing figures were all strong. The per-month average of jobs added beat last year's result-and 2004 was the highest job creation figure since the '90s.

Nonetheless, retailers expressed pessimism, as the Index of current business conditions fell to a new low of 93.2 in July, a full 15.2 points lower than it was a year ago at this time (December 2003=an index of 100). A total of 52.6 percent of retailers gave a positive current evaluation (compared to 65.8 percent a year ago), while 15.8 percent were negative, and 31.6 percent were neutral.

Positive evaluations decreased the most among supermarket operators, to 58.3 percent in July 2005 from 71.8 percent in July 2004. Retailers at smaller companies in particular said they were feeling the pressure, as the percent of positive evaluations among those retailers with 1 to 25 units was only 38 percent for the month.

Just as the view of current business conditions has declined, so has the look forward at the next six months. The Index of future business conditions declined to 90.8 in July, compared to 97.2 a year ago. In this case, C-store operators were far more likely than their counterparts to have negative expectations. Once again, this may be attributed to gasoline, as the price per barrel headed upward of $60.

What's next for retailers? James Russo, director of Retail Services for ACNielsen, suggested there is reason for optimism. Driven mostly by auto sales, the Department of Commerce's July retail sales increased by 1.8 percent, Russo explained. "Overall, people are spending. Given that auto incentives are likely to stop, that cash should be spread out among other retailers in the coming months, which bodes well for successful back-to-school and holiday seasons for retailers."

The VNU Retail Index is based on results of a monthly basis polling of a panel of more than 500 grocery, convenience, drug, mass, and specialty retailers across the country. The survey consists of six questions calling for an appraisal of current business conditions and operational challenges, as well as expectations regarding business conditions, hiring, and store count in the next six months.

If you are a retailer interested in joining the VNU Retail Index panel, please contact Debra Chanil, Director of Market Research, at [email protected].
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