A Long, Hot Summer for Discounters?

Monday held good tidings for followers of the major discounters. Both Wal-Mart (NYSE: WMT  ) and Target (NYSE: TGT  ) said that June numbers are thus far tracking along expectations. That's good to know, considering much has been made of possible pinches to consumer incomes, not the least of which is the high price of gas.

Target stood by its forecast that June same-store sales are expected to increase by 5% to 7%, while Wal-Mart reaffirmed that June sales should rise at the low end of the 4%-6% range.

Last week, Costco (Nasdaq: COST  ) reported an upbeat earnings picture, which made me think of the pull of summertime parties, barbecues, and picnics in discount retailing. When it's time to fire up the grill, purchase the new cooler, douse the kids and their friends with insect repellant, or buy the whole family new beach essentials, that's a great draw for the purveyors of bulk or discount goods.

That's the good news. Here's some potential bad news: We're already geared up for the possibility that those extra cents (which translate into dollars) at the gas pump certainly could dampen some shoppers' enthusiasm. Meanwhile, the cost of dairy, another staple, is also going through the roof.

According to news reports, consumers since April have been tempering their use of credit cards. It's hardly a surprise that the American life has resulted in excessive consumer debt, since far too many make ends meet with plastic.

If the specter of rising interest rates spooks credit card holders, that could mean less discretionary spending at discounters as well. Months ago, Bill Mann pointed out that shoppers who decide to hide -- or even cut up -- their cards could pose a threat even to behemoths like Wal-Mart.

Even some of the heated online shopping taking place could cool somewhat. Amazon.com (Nasdaq: AMZN  ) may position itself as the discounter of cyberspace, but comfort in burning up some credit is a prerequisite of Amazon purchases. That is, unless you do business with a site that uses eBay's (Nasdaq: EBAY  ) PayPal.

It certainly doesn't hurt to note that the opposite effect could occur: Thinner wallets might warrant more trips to Wal-Mart and Target and empty out the halls of the mall and its specialty retailers, many of which have been doing well. It's no reason for panic; it's just something to ponder and perhaps brace for on an early summer morning, with the sound of Brood X cicadas droning in the background.

Is your credit card debt out of control? Our Credit Center can help, with tips for those working hard to pare down their debt. After all, how can you plan for retirement if you owe?

Alyce Lomax does not own shares of any companies mentioned.


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