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    Retail Index Takes a Drop

    Gas prices have convenience retailers feeling less than optimistic.

    NEW YORK -- Was it just the usual summer lull that sets in at supermarkets after Memorial Day? Continuing confusion over gas pricing at c-stores? Can it be blamed on Wal-Mart, which reported sluggish sales for April and May?

    Whatever the cause, the retailers in VNU's Retail Index panel were not happy in June, as their evaluation of current business conditions dropped to 94.6 in June, an all-time low (from a base of 100 in December 2003, when the index was launched). Only about half of the respondents gave a positive nod to current conditions, compared to the two-thirds who did so a year ago at this time.

    What is getting retailers down, particularly after a jump in May? “There has been little momentum driving the economy, so a specific event -- a spike in crude oil prices, for example -- may have more of an effect on retailers,” said James Russo, director of retail services, ACNielsen. “The future, however, looks brighter, as retail sales for June increased across the board, led by better-than-expected results from Wal-Mart.” Russo added, “Stepping back and looking at the second quarter, overall economic and retail results look good.”

    Though not as dramatic as the decline in current business conditions, the index of future business conditions dropped last month as well, from 95.5 in May to 92.6 in June. C-store and mass/drug/specialty operators were more likely than their counterparts at supermarkets to predict positive business conditions in the next six months.

    The index for store count expectations in the next six months rose slightly to reach 100.4 in June -- the only index point to post an increase for the month. Supermarket and c-store retailers were almost even in their predictions of increasing store counts (at 46 percent and 49 percent, respectively).

    Among c-store operators, it should come as no surprise that gas prices are expected to have the most impact on sales. While tourism usually boosts c-store gas sales at this time of year, these operators are divided as to whether higher prices will keep consumers closer to home. Several operators believe their shoppers will make shorter vacation trips.

    “Higher prices will also have more of an effect at home,” explained one c-store retailer. “The price of petroleum products leaves families with less disposable income to spend on frills like car wash and cappuccino. It also forces them to shop for better prices, which bodes well for Wal-Mart, but not the average c-store.”

    For supermarket operators, increased competition -- including new store openings -- was cited most often as the single issue that will have the most impact on their summer sales. New supercenters were cited as a cause for concern among these retailers.

    Finally, mass, drug and specialty retailers say the weather will have the most impact on their summer business. Will the impact be positive or negative? It depends, literally, on where you are. While one operator notes, “Good weather decreases sales as people spend more time outside,” another claims, “No sun, no sales.”

    The VNU Retail Index is based on a monthly panel survey of more than 500 convenience, drug, grocery, mass and specialty retailers across the country. The survey contains 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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