New York - Is the war in Iraq hurting business?
The answer, according to dealers, vendors, analysts and pollsters, is a resounding maybe.
Due to the difficulty of quantifying the conflict's impact on CE and white goods sales, industry players are falling back on anecdotal information, market behavior during the first gulf war, and good old-fashioned gut instinct.
The result of this less than scientific analysis: While no one knows for sure if the added anxiety and distracting around-the-clock coverage of the war is suppressing sales, it certainly can't be helping the already anemic retail scene.
The numbers would certainly support that hunch. According to the National Retail Sales Estimate (NRSE), published by Chicago research firm ShopperTrak, U.S. retail sales fell 9.9 percent during the first four days of the war (March 20-23), compared to the same period last year. The biggest decline came on March 20, the first full day of the conflict, when sales were off 13.9 percent nationwide and 19.1 percent in the Northeast.
But sales for the full week slipped only 2 percent from the week before, while the 9.8 percent slide from the prior-year period is attributable more to the late Easter holiday than military action, ShopperTrak said.
'Even though we are at war, consumers are still shopping,' noted Michael Niemira, senior retail analyst for the Bank of Tokyo-Mitsubishi (BTM), and lead consultant for the NRSE. However, he said, 'We expect consumers will remain cautious with their spending and will probably put off purchasing big ticket items until there is more certainty in the economy. Much of this will depend on the length of the war and how quickly it takes for the economy to recover.'
Supporting Niemira's contention is a newly released NPD Group survey of consumer attitudes toward discretionary spending - conducted days before the onset of hostilities - which shows that 76 percent of shoppers are 'being careful' about making purchases for the next three months.
What's more, a significant percentage of the 5,000 respondents indicated that they plan to spend 'much less than usual' on major appliances (49 percent), consumer electronics (44 percent), video games (38 percent) and computers/software (37 percent).
NPD noted, however, that consumers 'somewhat surprisingly' regarded war worries (24 percent) as less of a factor affecting short-term spending plans than gasoline prices (46 percent), employment status (45 percent) and the economy (41 percent).
Consumer sentiment would seem to jibe with the outlook of retail executives. According to the latest Retail Executive Opinion Survey, conducted by the National Retail Federation (NRF) and BTM, such major indicators as store traffic, sales and inventories remained steady in March, and consumer expenditures were expected to shrink only a slim 1 percent for the month, year-over-year. 'Retail executives' optimism appears to be holding steady as consumers have not pulled back on shopping as much as some analysts feared, given the current geopolitical and economic climate,' said NRF president/CEO Tracy Mullin.
But surveys aside, individual dealers remain wary of the war's repercussions. 'Uncertainty affects business,' observed Nebraska Furniture Mart CEO Irv Blumkin. 'The sooner something [definitive] happens, the more people will feel comfortable.'
Scott Hymas, CEO of R.C. Willey, cited 'pessimism about the war,' along with slower job growth, as contributing to the 'challenging business environment.
'You've got to work hard for the business,' he said. 'It's out there, but you've got to keep promoting and providing value.'
National retailers concurred. In a conference call, Best Buy CEO Brad Anderson acknowledged that sales 'definitely took a dip at the start of the conflict, and stayed that way through Thursday,' March 27. Business improved over the following weekend, he said, as the shock and awe of the combat wore off.
But the conflict will nonetheless take a toll. Darren Jackson, Best Buy's executive VP/finance and CFO, said the company anticipates comp store declines in the low single digits for its fiscal first quarter due in part to 'the uncertainty and volatility caused by war.' Traffic has also been impacted by the 'CNN effect,' he said, as consumers are staying home to watch television war coverage rather than shop, although he expects that to abate within the next 90 days.
Best Buy executive VP/general merchandise manager Mike London further suggested that the CNN effect could actually support sales of big screen TVs, much as video volume rose in the weeks following September 11.
Wal-Mart, in its weekly update, also cited the CNN effect in warning that March same-store sales would be at the low-end of its earlier projection of low single-digit gains.
Similarly, Sears said apprehension over the hostilities was dampening traffic at shopping malls, where most of the company's full-line stores are located.
Among department store chains, Federated, parent of Macy's and Bloomingdale's, confirmed that comp sales weakened following the start of the war, while Nordstrom said that the conflict would impact profits.
Vendors are also on alert, particularly in car stereo, where the next two months comprise the category's key selling season. 'Retailers are seeing a slowdown in [12-volt] traffic,' said Kenwood's Bob Law, VP of sales and marketing. 'Anything of this magnitude is going to have some kind of impact. Even the major retailers outside of our business are reporting that type of phenomenon.
'Ultimately,' he continued, 'the impact will depend on how long the war continues. We're not seeing any major slowdown in dealer orders, but it depends on what will happen over the next week or so.' (For more on the war's impact on mobile electronics sales, see p. 32.)
How will the war ultimately play out at retail? If history is any guide, well. Banc of America Securities analyst Aram Rubinson recalled in a February white paper, 'Possible Implications of a War With Iraq,' that the S&P Retail Index dropped 30 percent in the wake of Iraq's invasion of Kuwait in August 1990, only to rebound 79 percent within a year.
While Rubinson cautioned that history will not be a perfect playbook given today's different macroeconomic environment, it does suggest a pattern: one of life, and retail sales, going on.