Fitch predicts sales down for holiday season
NEW YORK Fitch Ratings on Wednesday issued a pretty dismal outlook for the 2008 holiday season, suggesting that this year “could be the weakest season over the past two decades.”
The outlook is not as bad for drug retailers, as compared to specialty apparel and electronic retailers, however. The drug channel is expected to benefit from a mainly non-discretionary merchandise offering. “Given the significant pace of merger and acquisition activity over the past few years, both CVS Caremark and Rite Aid will continue to focus on integrating acquired units and leveraging their increased scale and breadth of services,” the firm said.
“There is a lack of large scale acquisition opportunities in the drug retail sector and therefore share gains will increasingly depend on generating above average organic growth, store closings or share losses by weaker independents and regional chains, and smaller market fill-in acquisitions and prescription file buys. Fitch expects drug retailers to further develop their multi-channel distribution strategies in areas such as pharmacy benefit management and specialty pharmacy where merger and acquisition activity could continue,” the company stated.
In addition, enhanced service offerings such as additional in-store clinics will help these retailers win share from other healthcare venues, the firm noted. “CVS Caremark is already well-positioned with leading market shares in all prescription distribution channels … and Fitch expects CVS Caremark to continue to drive share gains and leverage its integrated platform, generating incremental revenue longer term. However, industry participants could experience slowing top line growth if prescription volumes decline. In addition, profit margins could be pressured by weakness in front-end categories and potential changes in pharmacy reimbursement rates although an offset will be the growth in higher margin generics.”
Overall, real retail sales turned negative in the back-to-school period for the first time since 2001 and are expected to remain negative for the balance of 2008. This is particularly significant for the department stores as well as specialty apparel and electronic retailers as the fourth quarter represents about 30 percent of sales and up to 50 percent or more of operating earnings for these companies. Promotional activity will be substantial and broad based to drive customer traffic and clear excess inventory.
For 2009, Fitch expects that these trends will continue as consumers curtail discretionary spending and look to maximize value. Comparable store sales growth for operators selling clothing, home related goods, and other discretionary categories is expected to continue to be negative while those companies that have built a strong value perception and have strong private and exclusive brand offerings will outperform their peers. While the weak sales will be geographically broad based, sales pressure will be more acute in those markets most impacted by housing and job-related weakness. Similar to the 2008 holiday season, promotional activity is likely to be prevalent as retailers look to stimulate demand and clear overstocks.
The growth in personal consumption expenditures is projected to be down 1.6 percent in 2009 and the rate of growth is expected to remain below trend into 2010.
“Value oriented offerings will be the focal point as retailers try to capture more share of the consumer’s shrinking wallet,” Fitch said. Key beneficiaries of this shift in consumer behavior will be the discount formats, particularly those selling food such as Walmart and Costco.
FDA gives tentative approval to Natco Pharma’s treatment for breast cancer
ROCKVILLE, Md. The Food and Drug Administration has granted tentative approval to Natco Pharma’s anastrazole tablets, FDA records show.
The agency approved the 1 mg tablets on Nov. 7. The drug is a generic version of AstraZeneca’s breast cancer drug Arimidex.
Natco Pharma is based in Hyderabad, India.
Report says more consumers choosing private labels to save cash
CHICAGO According to research coming out of Information Resources, Inc. Tuesday, financially-strapped consumers across all income levels, including those earning $100,000 or more, are turning to private label as part of a money-saving strategy.
“With budgets strained to the breaking point, shoppers are scrambling for ways to save money,” stated IRI consulting and innovation president Thom Blischok. “Shoppers are looking through a lens of affordability and have a re-invigorated interest in private label since the economic turmoil began. The need for affordable packaged goods solutions is high, and private label products are going a long way toward answering that need.”
Private label is performing well across channels, but drug retailers are leading the way in growth, IRI stated.
On average, private label products cost about 30 percent less than their name brand counterparts. That discount varies greatly, though, at the department level. For instance, the average private label fresh/perishable item costs only 3.5 percent less than its branded counterpart, but in the beauty/personal care department, consumers can save nearly 64 percent versus a branded product.
Though nearly everyone purchases some private label products at some point, a notable 33 percent of shoppers are considered heavy buyers of private label goods. While significant opportunity remains, this is a substantial increase versus last year when 28 percent of shoppers were considered heavy buyers.
“The evolution of the U.S. private label market has accelerated in the face of growing financial turmoil,” Blischok said. “As shoppers opt out of some products and stores, they will opt into others. It is critical for the ongoing success of CPG manufacturers and retailers to not only react to, but anticipate these trends and be ready with products, assortments and store layouts that meet the shopper’s changing needs.”