A key economic benchmark indicates that consumers are feeling noticeably better about their prospects in the coming months, which could spell good news for drug store chains.

Consumer Confidence Index, The Conference Board, Consumer Confidence Survey, January, consumers, economic benchmark, consumer confidence, Lynn Franco, The Conference Board Consumer Research Center, business conditions, drug store, drug chain, drug store chains, Rite Aid, Walgreens, CVS, same-store sales, chain drug industry

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Consumer confidence up: Will drug chains benefit?

January 25th, 2011

NEW YORK – A key economic benchmark indicates that consumers are feeling noticeably better about their prospects in the coming months, which could spell good news for drug store chains.

Business think tank The Conference Board said Tuesday that its Consumer Confidence Index climbed to 60.6 in January, representing a strong gain from 53.3 in December and hitting a level not reached since a 62.7 reading last May.

"Consumers have begun the year in better spirits. As a result, the index is now near levels not seen since last spring," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement. "Consumers rated business and labor market conditions more favorably and expressed greater confidence that the economy will continue to expand and generate more jobs in the months ahead. Income expectations are also more positive. Although pessimists still outnumber optimists, the gap has narrowed."

According to the monthly Consumer Confidence Survey, which is based on a sample of 5,000 U.S. households, consumers' assessment of current conditions was more positive in January. Those saying business conditions are "good" rose to 9.8% from 7.7%, while those deeming business conditions as "bad" was virtually unchanged at 40.4%. Consumers' appraisal of the job market was also more upbeat. Those claiming jobs are "plentiful" rose to 5.2% from 4.2%, and those claiming jobs are "hard to get" fell to 43.4% from 46%.

The board noted that consumers' short-term outlook in January was more optimistic than in December. Those expecting an improvement in business conditions over the next six months rose to 19% from 16.8%, and those anticipating business conditions will get worse declined to 11.3% from 11.8%. Consumers were also more optimistic about the job market. Those anticipating more jobs in the months ahead increased to 16% from 14.2%, while those expecting fewer jobs fell to 17.5% from 19.2%. Also, the percentage of consumers expecting a rise in their income edged up to 11.4% from 9.9%.

For drug chains, the rebound in consumer confidence could signal that recent gains in same-store sales were no fluke and that more good news may be in store when the major chains — Rite Aid, Walgreens and CVS — report their latest results in the next 10 days or so.

In December, Rite Aid turned in its first monthly same-store sales gain since May 2009, with overall comparable-store results up 0.6%. Walgreens, meanwhile, saw robust front-end business fuel a same-store sales increase of 2.8% in December, which along with a 3.2% gain in November continued a rebound from a 1.3% same-store sales decline in October.

The chain drug industry closed out 2010 on a high note with solid revenue and same-store sales increases. Sales volume for the sector climbed 5.4% year over year to $238.3 billion in 2010, with same-store sales edging up 2.6% overall, according to research by Racher Press, the publisher of Chain Drug Review. Drug chains finished the year with a flourish, seeing a nearly 6% year-over-year sales rise in December and a 3.5% same-store sales increase.

For the near term, drug store chains may get a lift from a greater willingness to spend among shoppers in the overall retailing arena. Kantar Retail reported earlier this month that shopper spending intentions reverted to an improving trend in October, November and December after showing signs of deteriorating from June through September.

December continued a decline in the percentage of shoppers saying they plan to spend less in the coming month, according to Kantar's monthly ShopperScape poll. That measure reached a low of about 35% in December — the lowest level since the question was first asked in March 2008, Kantar noted.

Meanwhile, the percentage of shoppers saying they plan to spend about the same in the coming month continued its steady climb in December, reaching about 55% compared with around 48% at the start of 2010. Also in December, the percentage of shoppers indicating they aim to spend more in the next month edged up slightly to about 10%.

Kantar explained that consumer spending intentions may be getting an ongoing boost from a gradual improvement in shoppers' perception of their financial health. The research firm pointed out that in December, shopper perceptions of their job security, income level and investments held steady or improved from the prior month and prior year.