From Starbucks to Wal-Mart, US buyers pull back

FROM lattes at Starbucks to clothing at Wal-Mart, US consumers are showing signs of lethargy and have retreated from their free-spending ways. “I don’t know if they’re dead, but they certainly are on life support,” Carl Steidtmann, chief economist with Deloitte Services, said of the more liberal-spending consumer, which in the past had led the boom in the US economy. But as the housing market decline moves into its second year, energy prices continue to be high and food prices jump, the consumer could actually be a drag on the US economy. “Now the consumer makes up about 70% of all GDP growth,” Steidtmann said. “If that goes from a factor that is boosting growth to one that is (hurting) growth, that could very clearly be a factor that could lead to a recession.”

Wal-Mart Stores on Tuesday reported lower-than-expected second-quarter profit and said sales at US stores open at least a year rose only 1.9%. “It’s no secret that many customers are running out of money toward the end of the month, said Lee Scott, chief executive of the world’s largest retailer. The company, which has more than 127 million customers in the United States alone every week, also said shoppers were spending more on lower-margin items like food and eschewing higher-margin goods such as apparel. While economists tend to discount the impact of rising food prices in monthly inflation reports — because food tends to be a volatile component — consumers still feel the impact of widespread food price increases in their wallets. Sixty-five percent of US shoppers said they experienced significant price increases in their local supermarket, causing them to spend at least $8 to $20 more a week on groceries, Britt Beemer, chairman of America’s Research Group, said, citing a survey the group conducted in July. That compared with 53% in February and March and increased spending of $6 to $12. “They’re devastating back to school right now,” Beemer said of higher food prices, which appear to be cutting into back-to-school shopping for new clothing and other necessities.

But it isn’t just the Wal-Mart consumer who is being hurt. Sears Holdings said on Monday that sales at US Sears stores open at least a year fell 4.3% in its second quarter, with Kmart sales down 3.8%. Meanwhile, Home Depot has been hammered by the slumping US housing market and posted a 15% fall in second-quarter profit on Tuesday.

STILL A KING?

Consumer spending, the driving force behind the US economy, has slowed down in the past few months, although was resilient through a series of gasoline price spikes In the second quarter, consumer spending advanced at a slim 1.3% annual rate, down from 3.7% in the first quarter As the housing market continues to decline, energy prices remain high and food prices jump, the consumer could actually be a drag on the US economy

Retailers’discounts wean customers away from local chemists

BEING loyal to your neighbourhood retail stores could help you get medicines cheaper. With competition hotting up in the $5-billion domestic pharma retail market, customers are offered discounts ranging between 10-20% for most medicines. Retailers contend that such huge discounts would help retain customers and wean them from local chemists. Subhiksha, India’s retail chain offers a flat 10% discount on all medicines to customer irrespective of their profile. “We have the lowest price and cost structure that helps us give discounts and in turn retain customers”, Subhiksha MD R Subramanian said. In India, many drugs are sold over the counter unlike the developed countries where only a few are sold through retail outlets. Some retailers directly sell medicines while a few have tied up with local chemists for distribution. Delhi-based Pharma retail store 98.4 Degrees also works on the philosophy of discounts besides providing value added services like home delivery. “We give huge discounts to our loyal customers to retain them”, 98.4 Degrees marketing executive Neeraj Arrya said.

Med Plus, another pharma retail chain has also taken to the same model. “Our idea is to target the 40 plus population. We are targeting them through our customer loyalty cards”, Med Plus CEO Madhukar Gangadi said. Big retail chains are essentially banking on volumes to break even. But there are some players in the industry who oppose the discount model. North India-based pharma retail chain Guardian Lifecare is averse to offering discounts. “Quality management is our major focus. When we are dealing with life saving drugs quality rides over cost,” Guardian Lifecare CMD Ashutosh Garg said.

Many local chemists offer discounts only on day-to-day drugs in contrast to big retailers who give them for all medicines. For customers, it seems to be a win-win situation as they have the advantage of getting their regular medicines at prices lower than the maximum retail price (MRP).

Shoppers non-stop at Big Bazaars

THE saffron, white and green ambience of Big Bazaars across the country went completely unnoticed in the midst of a riot of shoppers. The five-day ‘independence sale’ of Big Bazaar, with some items discounted by nearly 60% to mark the 60th Independence Day, culminated across the country with people lining up for upwards of three-four hours before they could step foot into some of the stores.

As a result, the hypermarket chain saw crowds well in excess of the 15,000 footfalls they get over weekends in some of their bigger stores. At 11.30 PM at Phoenix Mills, Mumbai, it seemed like a normal holiday shopping crowd. However, within an hour, as school Independence Day functions wound up, the crowds came, and both the parking lot and the mall attendants were stretched. The police were on stand-by to avoid any untoward incident after last year’s fiasco at Phoenix Mills. A steady stream of delivery trucks made their way into the mall over a period of three hours to ensure that there were no stockouts. As the entry line at Phoenix Mills wound itself around the extremities of the mall, the store attendants provided biscuits and water to the waiting people. Says Rajan Malhotra, chief executive, Big Bazaar, “We were better prepared this year after the events of last year. Hence we spread it out over a longer period and made better arrangements for all our customers.”

The total number of Big Bazaars, at 66, have more than doubled from last year. According to Mr Malhotra, the targeted revenues from the five-day sale was Rs 150 crore. Some categories like home furnishings had discounts upwards of 30% on a listed price of Rs 50,000 and were a fast moving category