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    VNU Retail Index Reflects Operators' Worries about Maintaining Gains

    NEW YORK -- Retailers are increasingly concerned about the sustainability of economic growth, and specifically about the effect of gas prices on growth, according to the latest VNU Retail Index, the industry's only comprehensive monthly survey of retailer sentiment. VNU is the parent company of Progressive Grocer.

    NEW YORK -- Retailers are increasingly concerned about the sustainability of economic growth, and specifically about the effect of gas prices on growth, according to the latest VNU Retail Index, the industry's only comprehensive monthly survey of retailer sentiment. VNU is the parent company of Progressive Grocer.

    The competitive environment continues to lead retailers' lists of challenges to earnings growth, as it has since the index started in December 2003. More retailers are also citing economic conditions as another major concern, however. In the May 2005 survey, 26 percent of retailers surveyed named economic conditions as their biggest challenge, compared with only 15 percent of respondents at the beginning of the year.

    Other results from the May survey show the index of current business conditions reaching 107.3 for the month, rebounding from a low of 99.2 in March (December 2003 = 100). A total of 59 percent of retailers across all channels were positive about conditions in May. Among the various retail channels, convenience store operators were happiest of all, as 66 percent reported current conditions as positive, perhaps as a result of optimism that gas prices are stabilizing. By comparison, just 59 percent of supermarket operators gave positive assessments of their current business conditions.

    In their assessment of future business conditions, overall retailer expectations rose by about two points, to an index of 95.5 in May. Once again, c-store retailers are more likely than their grocery counterparts to have a positive outlook on the next six months (69 percent, vs. 62 percent for supermarket operators). This is a reversal of results from April, when supermarkets led the positive ratings.

    The index for hiring expectations in the next six months reached 113.7 in May, a 3.7-point jump. Interestingly, this increase was driven by a rise in retailers who expect no change in hiring, and a decline in those who expect to decrease their work force during this period. Indeed, the proportion of operators that expect hiring to increase actually dropped, from 48 percent in April (its highest point in the 18-month lifespan of the VNU Index) to 44 percent in May.

    While the hiring index has generally remained over 100, there have been some significant swings from month to month. James Russo, director of retail services at ACNielsen, suggested that this is a reflection of uncertainly in consumer spending and concerns over the stability of economic growth.

    "This uncertainty is evident across the financial markets, as there is clearly a lack of momentum in the business sector," said Russo. As cautiousness prevails, are opportunities being missed? "Never underestimate the resiliency of the U.S. consumer to spend," Russo advised.

    The VNU Retail Index is based on a monthly panel survey of more than 500 grocery, convenience, drug, mass, and specialty retailers across the country. The survey contains six questions calling for an appraisal of current business conditions and operational challenges, as well as expectations regarding business conditions, hiring, and store count in the next six months.
    --Debra Chanil

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