European Debt Woes Impact U.S. Retail Giants
As if businesses didn’t have enough to worry about with U.S. economic and political news, third-quarter earnings reports from major businesses in Central Massachusetts are showing that European debt crisis worries are beginning to be felt here in the United States.
Staples, the Framingham-based office retail giant, saw profits rise 13 percent in the third quarter compared to last year, but sales in Europe were off 12 percent. Companywide, revenues stayed flat at about $6.6 billion.
Joscelyn MacKay, an analyst who tracks Staples for Morningstar, said the news from Staples aligns with that of other retailers that have international operations.
Weak consumer confidence in Europe has discouraged people from shopping, and MacKay noted that for Staples, retail store and distribution sales were off compared to last year, reflecting a notion that it’s not just consumers holding back on shopping, but also businesses.
“Across the consumer industry we’re seen some belt tightening in Europe,” she said.
Other local retailers seem to be feeling the pinch from the European slowdown as well.
TJX Cos., the Framingham-based off-price retailer, for example, saw its European same-store sales come in flat in the third quarter compared to last year. That compared to a 3-percent increase in comparable store sales in all other outlets, and increases in same-store sales in the U.S.
“European business, in general, has slowed down a little bit and that’s certainly not specific to TJX,” said Howard Tubin, a retail analyst with RBC Capital Markets in New York.
But Europe has been a tricky area for TJX in the past year or so, Tubin noted.
An overly aggressive expansion strategy by the company caused comparable store sales to drop 3 percent last year. Since then, the company has implemented changes in operations, focusing on distribution and inventory efficiencies. While the company’s third-quarter sales in Europe may be flat, Tubin suggested that could actually be a good sign for the company compared to the drop in same-store sales last year. Had it not been for the European debt crisis and some unseasonably warm fall weather, sales could have increased.
However, not all companies are feeling woes from European markets.
For smaller companies, and especially non-retail oriented businesses, there has not been as much of an impact yet from debt worries around the continent, said Julia Dvorko, Central Massachusetts regional director for the Massachusetts Export Center, which advises businesses on trade issues.
“I think for larger companies, and retailers especially, this would register a little earlier,” she said. “From the sophisticated manufacturers and small business we work with, we haven’t seen much of an impact yet.”
Holding Ground
Manufacturers in the Bay State haven’t felt the pinch yet either, said Jack Healy, director of operations for the Massachusetts Manufacturing Extension Partnership, a Worcester-based group that consults for manufacturers. Many customers order products up to a year in advance, he said, so recent challenges in Europe have not hit the industry yet.
“These are not (any) impulse purchases,” he said.
Manufacturers and other businesses have begun to focus more on markets outside Europe in recent years since they can, in some cases, offer even stronger growth opportunities.
A decade ago, if a business were interested in trade, Europe would be the natural launching point. Now, Dvorko said, that’s not necessarily the case.
“You really need to go where your customers are,” she said.
As for how U.S. companies operating in Europe can protect their firms, Dvorko said it’s important for businesses to ensure customers have solid credit lines and can pay for products.
“Right now it’s a big unknown,” Dvorko said about the future of European trading. “A whole range of things could happen, so it’s really important to be careful.”
WBJ Web Partners
Most Recent
Most Recent
0 Comments