Retail Industry Update
by Risa Kaplan (MF Nanny)

San Francisco, CA (March 28, 1997) -- This week's two leading indexes of national retail sales showed different pictures as to what was going on in our stores this month. While LJR Redbook shows sales up 0.9% in the first three weeks of March, the BTM/Schroders Retail Chain Store Sales Index was unchanged in the week ended March 22. The BTM/Schroders report said sales were generally on schedule for many retailers, due to apparel and seasonal merchandise. (Your Easter bonnet, with all the jellybeans and chocolate eggs.) However, sales are expected to be soft compared with a year ago in the final week of March because of the early Easter holiday. Discount stores were above plan, and most department stores on plan, according to Schroder. According to the LJR Redbook report, national and regional department stores indicated that sales momentum had slowed, and their year-over-year gains fell noticeably from the previous weeks' levels. Some retailers expressed doubts about meeting their monthly goals.

Made in China

Last week, reading a press release on TOY BIZ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBZ)") else Response.Write("(NYSE: TBZ)") end if %> I noticed that the disclosure on risks and uncertainties describing possible financial contingencies, contained the following phrases, "company's dependence on Chinese manufacturers, and U.S. relations with China."

Given the recent headlines and front page news in newspapers across our nation, investors cannot ignore that we exist in a true global economy. We must recognize that almost every major company in the United States has an interest in China right now and both Beijing and the U.S. are eager for U.S. corporations to tap into the world's largest market. Twenty percent of the world's consumers live in this rapidly expanding export market. Moreover, it is not just the export market that makes China so attractive. Corporate America shops China. According to the Global Trade Information Services, the four largest area of retail commodity imports from China are footwear, toys and sports equipment, knit apparel, and miscellanous textile articles. Our consumers crave Chinese made sneakers from NIKE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %>, REEBOK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RBK )") else Response.Write("(NYSE: RBK )") end if %>; toys sold in TOYS-R-US, <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOY)") else Response.Write("(NYSE: TOY)") end if %> goods such as plastic household gadgets to apparel sold in SEARS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S )") else Response.Write("(NYSE: S )") end if %>, J.C. PENNEY'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP )") else Response.Write("(NYSE: JCP )") end if %>, KMART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %>, and FEDERATED, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FD)") else Response.Write("(NYSE: FD)") end if %>. John Motely, a lobbyist for the National Retail Federation recently said there are "some things we can't buy anywhere else in the world." (And probably not at that price.)

Adding to the mix, the goods deficit with China increased from $2.6 billion in December to $3.7 billion in January. According to the Census Bureau, U.S. exports to China decreased $0.4 billion to $0.9 billion, while imports from China increased $0.7 billion (primarily apparel, footwear, and toys) to $4.7 billion. These numbers seem to indicate that Vice President Al Gore may have to add pressure on China to lower its trade barriers. However, given the political climate in Washington with the investigations into Asian donations to the Democratic presidential campaign, Mr. Gore will probably have to tread lightly.

In a related note, many retailers are carefully watching the Hong Kong reversion to Chinese rule this summer. The Hong Kong port remains a major import center for many retail giants. Half of China's overall dollar volume of goods sold to Sears passes through Hong Kong. However, most retailers have indicated that they do not see any problems, are not seeking alternative supply routes, and expect a smooth transition for Hong Kong from British to Chinese control.

No More Dusty Shelves

Up to now, there has been little in online shopping services that has attracted Wall Street. Many publicly trade retailers have websites for consumers to make purchases online. However, so far the major investment houses have shown little interest (other than in technology-based companies) in what many perceive as an over-hyped commercial Internet environment.

People who have money to buy consumer items may be looking to the Internet as a convenient place to shop, however the best sellers may be those commodities that need no physical inspection as to size or fabric. That is what makes book selling on the web perfect. Based on those demographics and research, this week AMAZON.COM, INC., the online bookseller, filed an initial public offering of 2.5 million of its shares at $13 each. The Seattle based-company filed through underwriters led by Deutsche Morgan Grenfell. The IPO, which values the company at $299 million, will generate net proceeds of $33.9 million that would pay for anticipated operating losses, capital expenditures and other general corporate uses, the company said. The company reported revenues have risen 20% to 30% each month and the company's number of employees has increased from seven to 200 in less than two years.

In addition Amazon said it will double the number of books it offers to 2.5 million. What has attracted many to this pioneer book-selling market is the ability to browse all hours of the day and night, find obscure titles, read online reviews, and receive e-mail alerts about favorite subjects and authors.

Not to be outdone by the new kid on the block, the largest book retailer, BARNES & NOBLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKS)") else Response.Write("(NYSE: BKS)") end if %> announced last month that it would become the exclusive on-line bookseller on AMERICA ONLINE, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>. In addition, Barnes & Noble and BORDERS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BGP)") else Response.Write("(NYSE: BGP)") end if %> plan to open their own web sites this spring. Barnes & Noble also announced it would discount all in-stock books 30% for hardcovers and 20% for softcovers, which began a book war as Amazon was forced to announce discounts of between 30-40%. It will be interesting to see how quickly these established retailers can ramp up and compete with Amazon. This scenario will again test the strength of a first-out-of-the-box small company like Amazon, and if, in fact, being first is a premium even against large corporations.

While on the subject of booksellers, BOOKS-A-MILLION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BAMM)") else Response.Write("(Nasdaq: BAMM)") end if %> disappointed Wall Street last Friday by announcing that combined heightened competition and a shorter holiday season pushed its fiscal fourth quarter earnings down by 30%. Same-store sales at its superstores, which account for 85% of total sales, slipped 0.7%. The quarter that ended February 1, 1997, matched the mean estimates by First Call however were down $0.10 a share from the same quarter last year. Sales overall were up 14%, but sales at stores open at least a year were down 1.2%. Books-a-Million, the fourth largest bookstore chain in the nation, is located in the Southeast and operates about 130 bookstores in 17 states. Located mostly in malls, the stores also sell greeting cards and gifts in certain locations. In addition, the company acts as a wholesaler of bargain books and other types of books to independent bookstores and mass merchandisers. Over the last year both Barnes & Noble and Borders have moved away from mall stores and are venturing into more free-standing spaces. It will be interesting to see if this bookseller follows that trend.

Finally, I can now do three of my favorite things under one roof....shop for clothes, buy books and eat. Showing an interest in teaming up apparel and books, BENETTON GROUP SPA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BNG)") else Response.Write("(NYSE: BNG)") end if %> the Italian clothier, in partnership with Rizzoli Bookstores, will open an abbreviated branch next week, stocking about 300 titles in a Benetton's clothing store cafe located in midtown Manhattan.

Remember your plastic -- "We never leave Fooldom without it."

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