Consumer saving could further hinder big ticket sales for major retailers

More consumers plan to sock away their tax refunds which is bad news for retailers like Wal-Mart who are sitting on higher inventory levels two months removed from what was a disappointing holiday season.

Last week the National Retail Federation warned members that a new survey predicts 46% of those expecting a tax refund this year intend to save the money. The so-called savers outnumber last year just slight at 44%. About 67% of consumers surveyed said they anticipate a refund check from Uncle Sam.

The NFR Survey Results include the following findings.
• 38% plan to pay down debt
• 25% need the refund for everyday expenses
• 13% will spend it on a vacation
• 11% will treat themselves

The NRF also reports that about one in four of those surveyed had already filed taxes. Another 37% plan to do this month (February), and 26% said they would file in March and 15% said they would wait until the last minute.

Given this slower pace to file, retailers are holding out hope they can still woo shoppers in with big clearance sales, especially on big ticket items such as electronics, left over from unsold holiday inventory.

Bill Simon, CEO of Walmart U.S., said during last week’s media call that tax refund activity is running behind this time last year, but has started to pick up a little momentum.

Retail analyst Doug Hart, with DBO USA, said it makes sense that consumers plan to save back refunds this year, given that consumer debt has been on the rise, especially in December and January.

INVENTORY LEVELS
Simon said last week that recent fourth quarter inventory grew 3.8%, moderating from prior quarters but it was still higher than the rate of sales. He said the retailer remains committed to disciplined inventory management and is well positioned for spring seasonal conversion.

Inventory overruns are leading to deep discounts for many large ticket items such as Apple iPad 2 16 GB for $299 or 60” Vizio LED HDTVs for $798, a savings of $201.99. Large displays of unsold televisions are positioned to catch shoppers eyes as they enter some supercenters. Other stores have them lined up in the rear “Action Alley” aisle and Walmart.com continues to feature them in daily email notices to customers that have previously ordered online.

Wal-Mart also noted that its entertainment category, which includes toys, posted negative comparable sales in the fourth quarter. Sales were negative mid-single digits, according to Simon. The retailer said it was able to pick up market share with positive reactions from the “one-hour guarantee” program on Black Friday. 

“While we were pleased with the our share performance, we continued to face challenges related to ongoing entertainment industry contraction,” Simon said.

According to research firm NPD Group, consumer electronics sales fell 2.4% to $22.9 billion during the 9-week holiday period.

The inventory excess and discounts are not limited to electronics, as Wal-Mart advertises “thousands of clearance items” in its February Savings Day’s marketing campaign. Tires, mattresses, camping gear and small appliances are some of the other  categories featured in Wal-Mart’s newest rollback campaign.

WEAK FORECAST
One main concern from analysts following Wal-Mart’s recent tepid forecast for this quarter is that this aggressive pricing to move out inventory is further eroding gross margins. This could hinder top and bottom line results if the consumer stays cautious.

Comparable sales at Walmart U.S. were down in the first two weeks of February due to bad winter weather. For the 13-week period ending May 2, Walmart U.S. expects comp store sales to be flat. Comp sales declined 1.4% in the prior-year period.

The weak forecast was enough to prompt Stifel Nicolaus to downgrade its rating on Wal-Mart shares to a “hold,” or neutral position, as it plans to sit on the investment sidelines to see how the retail behemoth navigates through the next few quarters.

Shares of Wal-Mart Stores (NYSE: WMT) closed Monday at $73.35, up 23 cents. The shares have been on a downward trend since the start of this year. For the past 52 weeks the share price has ranged from an $81.37 high to a $70.44 low.