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Some Retailers See Slow Start in 2013

Concerns arose last week that retailers could be in for an even tougher year than expected after a leaked email from a Wal-Mart Stores official described sales in early February as “a total disaster.”

The email, sent by Jerry Murray, Wal-Mart’s vice president of finance and logistics, cited higher payroll taxes and slower federal tax returns for contributing to “the worst start to a month I have seen in my 7 years with the company,” according to Bloomberg.

The apparent slowdown in Wal-Mart’s sales — which the company would not confirm — came despite its expectations that sales would improve in early February, Bloomberg added, citing minutes of a Feb. 1 meeting of company executives.

The event caused panic among investors on Wall Street and raised concern that sales would be even slower than modest expectations.

“We don’t think February’s weak start should come as any surprise,” Deborah Weinswig, an analyst covering retailers at Citibank, said in a research note last week. “The low-end consumer is facing significant headwinds including higher taxes, delayed tax refunds, higher healthcare contributions, rising gas prices and poor weather. … We expect low-end consumers to be pressured and middle-end consumers to trade down.”

Meredith Adler, an analyst with Barclays Capital, told SN last week there were still too few data points to draw conclusions from the Wal-Mart email, but acknowledged “if nothing else this has raised some concern.”

The payroll tax, which was reinstated Dec. 31, means that the average household is taking home $1,300 less in disposable income this year, or around $54 per paycheck, according to Weinswig. In the meantime federal tax refunds paid to consumers were down by more than 20% vs. last year’s pace as a result of new anti-fraud procedures that delayed the date at which consumers could file.

Food retailers contacted by SN last week said they too have felt the pinch of payroll taxes and slower-arriving refunds, but also said the effects were difficult to quantify. Some said they were meeting their sales expectations in spite of those challenges.

One retail executive, who asked not to be identified, told SN he felt the payroll tax was affecting consumer mindsets.

“I believe it to be true, but it is so early in the year, and with Valentine’s Day, the Easter shift, and weather and everything else, it’s hard to quantify.”

Read more: NRF Forecasts Slower Sales in 2013

The executive said the impact has been reported by foodservice operators he has been in contact with. “That supports my hypothesis that you are seeing people change the way they manage disposable income, based on changes in tax structure.”

Scott Karns, president of Karns Foods, Mechanicsville, Pa., told SN he felt consumers were pulling back slightly as a result of higher taxes, but the reduction was in the range he expected. “We’re still on plan,” he said last week.

The National Retail Federation last week said results of a recent poll indicated that nearly six in 10 Americans said the new federal tax laws were either somewhat or greatly impacting their spending plans, and that consumers making less than $50,000 per year were most affected.

Nearly half (45.7%) of all consumers polled said they would spend less overall. Among those making less than $50,000 per year, half said they would spend less overall, NRF said. That group also said they were more likely to spend less on groceries (23.2% vs. 16.7% of consumers making more than $50,000 a year).

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