It's no surprise, really. Today, Target (NYSE: TGT) said that it will miss its same-store sales forecasts for June, with sentiments echoing those of Wal-Mart (NYSE: WMT) yesterday. Wal-Mart reporting sluggish sales gives the hint that maybe Target would suffer, too. What is surprising, maybe, is that consumer confidence leapt in June. What gives?
Although here at Fool HQ, this summer has seemed warm and steamy, both retailers cited cooler, rainy summer weather for the slowdown in sales. In other words, shoppers took a pass on shopping for some summertime items, like pools and related accoutrements, and were also a little less likely to go out shopping on rainy days. Also, Father's Day sales came in slower than expected; maybe some gifts for Dad got an upgrade this year, purchased from higher-end specialty retailers.
Target said June same-store sales are "well below plan," which sounded the alarm bell with many investors.
With consumer confidence on the upswing, discount retailers may be on the back burner for now, given less urgency for bare-bones shopping and possibly more emphasis on paying a higher price for convenience. Furthermore, people who are less worried about jobs and money are more likely to splurge a little; we all know specialty and luxury retailers have been ringing up sales.
With a more confident consumer out and about, it stands to reason that even bargain-conscious shoppers may change their stripes. Motley Fool Stock Advisor pick Costco (Nasdaq: COST) has been enjoying some upbeat times. One reason may be its tendency to carry merchandise that's often perceived as higher quality than the discount retailers. In addition to its bulk goods, Costco often hawks name brands at bargain prices.
Meanwhile, there's hope that gas prices are improving, although the high cost of dairy and other food staples could still burn into discretionary income. At the beginning of this month, I looked at discount retailers and, among other questions, wondered about the specter of increasing interest rates and how that might affect low-income shoppers and their habits.
The last couple of years have been good ones for the discounters, considering the high levels of consumer anxiety and what was possibly a near-universal urge to do some serious pinching of pennies. Today, some investors lost faith, as Target shares lost about 5% in recent trading. There may be some rough times ahead for the deep discounters as some shoppers celebrate feeling a little more flush, but patient buy-and-hold investors understand that some economic environments are better than others, and sometimes the climate's cool.
Talk about the current discount environment with other Fools on the Wal-Mart discussion board.
Alyce Lomax does not own shares of any of the companies mentioned.
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