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Soft October CE Sales Raise Holiday Concerns

Whether it was the distraction of Halloween, consumers taking a pre-holiday shopping breather, or something more structural and ominous, CE sales went south in October, prompting concern in some quarters.

Contributing to the disquiet were the monthly sales reports from Costco and Conn’s, and another disappointing earnings season for hhgregg.

The No. 1 warehouse club said CE comp sales dipped by the mid-single digits in October, and, in a rare-for-Costco announcement, that the rate of traffic growth had slowed, from 4 percent last year to 2.75 percent last month.

Conn’s CE business also suffered in October with comps falling nearly 12 percent, although in this instance it was something of a self-inflicted wound, reflecting its decision to abandon video gaming and digital imaging, and to drop select tablets.

Excluding the impact of the jettisoned products, same-store CE sales decreased 2.9 percent, although the product breakouts were still unsettling: TV comps were down 3.5 percent, due to lower unit volume, and home office was off by 9.7 percent, reflecting the loss of the tablets.

Even a healthier business like major appliances saw a 2.4 percent comp sale decline, president/CEO Norman Miller reported, reflecting lower unit sales and flat ASPs.

Only furniture and mattresses thrived, with comps up 9.7 percent for the combined category.

Miller acknowledged a “softening sales performance” for the Texas-based chain in markets that are more heavily dependent on the oil industry, which itself is feeling the effects of diminished demand.

Meanwhile, hhgregg, whose second fiscal quarter ended Sept. 30, said CE comps fell 6.3 percent for the period, while computer and tablet comps declined 30 percent.

Looking at the bigger picture, president/CEO Dennis May noted that total comps, which dipped 3.5 percent, showed a big improvement over last year’s 11.4 percent decline, although the net loss remained relatively static at $10.1 million, vs. $10.4 million in 2014.

Despite unique circumstances, the retailers’ results don’t exist in a vacuum and JPMorgan analyst Christopher Horvers, in a research note obtained by Barron’s, saw Costco’s report as a potential red flag for Best Buy, if only a hiccup for the warehouse club.

“Costco experienced a major category slowdown with consumer electronics down mid-single digits in October on the back of weak September census sales,” he wrote, “which is consistent with our thesis for [our] April downgrade of Best Buy. After a strong start in August, we suspect that trends decelerated during the quarter.”

The news was likely no surprise to the Consumer Technology Association (CTA), which registered a drop in shoppers’ tech-spending expectations in October, as seen in its monthly Index of Technology Expectations (ICTE). The index showed a 5.5-point drop, to 83.3, on a 100-point scale.

But the dip, for both the index and ostensibly retail sales, was no cause for alarm, according to CTA chief economist Shawn DuBravac, who described it as consistent with past years and “not unusual for October.”