Sales may mean dim holidays

Back-to-school numbers have retailers worried over what's to come at Christmas

Associated Press

September 5, 2008

NEW YORK - When it came to buying their children new jeans and trendy tops, parents held the line: They focused on basics at discounters and waited for the best deals, resulting in weak August sales at many stores. That's a bad sign for the holiday season, because families might be just as cautious with their gift-giving.

Even lower gas prices might not offer retailers much relief in the months ahead as shoppers see personal incomes fall and food prices remain high. In fact, Wal-Mart Stores Inc., the world's largest retailer, as well as warehouse club operators such as Costco Wholesale Corp., remain among the few bright spots as shoppers focus on the lowest prices.

"Consumers are feeling pressured economically," said Stifel Nicolaus & Co. analyst Richard Jaffe. But he added that what also hurt the back-to-school business is the lack of new trends to excite teens.

"What you have in your closet is certainly adequate. And that's not satisfying for retailers and teens," he added. "The fear is that they stay in flip-flops."

Ken Perkins, president of research company RetailMetrics LLC, agreed that shoppers remain focused on price. "I don't see anything changing any time soon. Parents are still going to buy for Christmas, but it is definitely going to be less than last year."

As retailers reported their sales results yesterday, most mall-based apparel stores turned in sluggish results. Teen retailers that fared poorly included Wet Seal Inc., Abercrombie & Fitch Co. and American Eagle Outfitters Inc. And high-end retailers Saks Inc. and Nordstrom Inc. posted weaker results as their affluent customers start to feel pinched.

The International Council of Shopping Centers-UBS sales tally rose 1.7 percent in August, below the 2 percent forecast. Excluding Wal-Mart, the results were flat compared with a year ago. Last month's pace was below the 2.3 percent average since the beginning of the industry's fiscal year in February. The tally is based on same-store sales, or sales at stores open at least a year, and are a key indicator of a retailer's health.

Such figures aren't comforting to retailers as they prepare for the critical holiday season. Many had entered the fall season with inventories well below their levels a year ago, but that backfired at several stores, including TJX Cos., Wet Seal Inc. and Bon-Ton Stores Inc. All three were hurt by having too little clearance merchandise, cutting into sales to bargain-hunting consumers.

One encouraging factor is that Hurricane Gustav, which hit the Gulf Coast on Monday, wasn't as bad as analysts feared - and that sent oil prices even lower. Gas prices have fallen from more than $4 a gallon to a national average of $3.678 on Wednesday but remain well above the year-ago figure of $2.792, according to AAA and the Oil Price Information Service.

Still, Michael P. Niemira, chief economist at the ICSC, thinks that gas prices will have to fall to $3 per gallon or below before shoppers will increase their spending. And even then, Americans face other economic worries, such as slowing personal income, higher food prices and a slumping housing market.

"The fall in oil prices is a bit of good news, but we need to see more positive economic news," Niemira said. Oil prices, too, remain volatile. Retailers are now preparing for the next series of tropical storms, which could send oil prices back up.

Helped by sales of groceries and back-to-school products, Wal-Mart reported a solid 3 percent gain in same-store sales. Analysts surveyed by Thomson Reuters had expected a 1.6 percent increase. Including fuel, same-store sales rose 3.5 percent.

Wal-Mart added that as with all seasonal events, customers are waiting longer to do their shopping, and said that with more schools opening later this year, overall business picked up at the end of the month.

slumping

Summary of August same-store sales results for apparel category store chains, with percentage increase or decrease from the corresponding month last year.

•Abercrombie & Fitch Co.: -11%

• Aeropostale Inc.: +13%

• American Eagle Outfitters Inc.: -5%

• Chico's FAS Inc.: -10%

• The Children's Place Retail Stores Inc.: 0%

• Gap Inc.: -8%

• Limited Brands Inc.: -7%

• Pacific Sunwear of California Inc.: -6%

•Target: -2.1%

•Wal-Mart: +3%