Michigan Retailers Squeezed by Higher Energy Costs

LANSING, MI--(Marketwire - August 27, 2008) - Michigan retailers say they're faced with significantly higher operating costs because of the same force hurting consumer spending in their stores: higher energy prices.

More than four of every five retailers (83.3 percent) answered "Yes" when asked in the latest Michigan Retail Index survey: "Are you seeing your recent operating costs rise significantly?" A clear majority (72.3 percent) said "the most pressure" was coming from higher prices for gasoline or electricity and natural gas.

The monthly Index survey is a joint project of Michigan Retailers Association (MRA) and the Federal Reserve Bank of Chicago.

"As retailers struggle to sell goods to consumers reeling from higher energy costs, they are also squeezed by the higher costs they must pay to run their stores, make deliveries and ship and receive merchandise," said James P. Hallan, MRA president and CEO. "In the highly competitive and discount-oriented retail marketplace, retailers don't feel they can simply pass on their higher costs to customers."

While data from recent Index surveys show more retailers have been raising prices this year, about half have maintained prices or cut them. During July, retailers were evenly split between those raising some prices and those maintaining or cutting prices.

Also for July, the Index showed 38 percent of retailers increased sales over the same month last year, while 45 percent recorded declines and 17 percent saw no change. The results create a seasonally adjusted performance index of 48.1, up from 36.3 in June.

Looking forward, 35 percent believe their sales will increase for August-October, while 39 percent forecast declines and 26 percent project no change. The results create a seasonally adjusted outlook index of 48.5, up from 47.9 in June.

The Michigan Retailers Association is the unified voice of retailing in Michigan and the nation's largest state trade association of general merchandise retailers.

Note: William Strauss, Senior Economist and Economic Advisor with the Federal Reserve Bank of Chicago, can be reached at 312.322.8151.

Michigan Retail Index
July 2008 results
Index figures dating to July 1994 are available at
www.retailers.com/news/retailindex.html

July Performance
Retailers reporting increased, decreased or unchanged sales, inventory,
prices, promotions and hiring compared to the same month a year ago
(numbers in parentheses indicate June results)
             % Increased  % Decreased  % No Change  Index*       Responses
Sales        38 (34)      45 (55)      17 (11)      48.1 (36.3)  131 (128)
Inventory    22 (27)      41 (37)      37 (36)      42.8 (44.1)  131 (125)
Prices       50 (49)       9 ( 5)      41 (46)      71.8 (70.6)  130 (127)
Promotions   34 (39)      10 (10)      56 (51)      63.8 (63.7)  129 (127)
Hiring       10 (10)      25 (19)      65 (71)      42.8 (44.9)  127 (125)


Outlook for Next 3 Months
Retailers expecting increased, decreased or unchanged sales, inventory,
prices, promotions and hiring compared to the same period a year ago
(numbers in parentheses indicate June results)
             % Increased  % Decreased  % No Change  Index*       Responses
Sales        35 (36)      39 (37)      26 (27)      48.5 (47.9)  132 (128)
Inventory    21 (19)      40 (41)      39 (40)      39.4 (38.2)  132 (124)
Prices       44 (50)       5 ( 4)      51 (46)      69.6 (72.8)  132 (127)
Promotions   37 (43)      10 ( 5)      53 (52)      64.1 (68.0)  131 (127)
Hiring        6 (11)      17 (19)      77 (70)      45.7 (45.4)  129 (125)


July Sales Performance & Outlook for Next 3 Months, by Region
(the first number indicates sales performance for the month; the number
in parentheses indicates outlook for the next three months.)
                % Increased     % Decreased     % No Change
North           48 (17)         38 (60)         14 (23)
West            40 (43)         47 (37)         13 (20)
Central         37 (42)         26 (26)         37 (32)
East            33 (11)         45 (11)         22 (78)
Southeast       33 (41)         57 (38)         10 (21)

Question of the Month
Are you seeing your recent operating costs rise significantly?
Yes             No
83.3%           16.7%

If yes, is the most pressure coming from:?
Gasoline   Electricity/Natural Gas   Cost of Goods   Labor   Other
49.2%      23.1%                     0.0%            9.2%    18.5%

*Seasonally adjusted diffusion index. A diffusion index, which is the sum of the percent of respondents indicating increase and half the percent indicating no change, is calculated and then seasonally adjusted using the U.S. Census Bureau's X-11 Seasonal Adjustment procedure. Index values above 50 generally indicate an increase in activity, while values below 50 indicate a decrease.

Contact Information: Contact: Tom Scott 517.372.5656