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Retailers report cold September

Markdowns failed to spur sales, heightening fears of a dreary holiday season.

October 10, 2008|Andrea Chang and Ronald D. White | Times Staff Writers

Main Street delivered another wallop to Wall Street on Thursday with news that many of the country's best-known retailers have been struggling with dismal sales and see little hope for improvement in the months ahead.

At department stores, luxury chains and specialty retailers, September was a grim month as the worsening economy and credit crunch hammered consumer spending.

Many reported substantial sales declines Thursday at stores open at least a year -- a measure of retail health known as same-store sales. Some companies reported their sales Wednesday.

Stores such as Gap Inc., Abercrombie & Fitch Co. and Neiman Marcus Inc. all posted double-digit declines, while discounters Costco Wholesale Corp. and Wal-Mart Stores Inc. reported gains that still fell short of analysts' expectations.

To make matters worse, analysts are worried that consumers will pull back even more as the fallout from the financial meltdown continues to filter through the economy. The holiday season in particular could be in jeopardy as shoppers cut back on buying presents for their family and friends.

"It's going to be one of the worst in probably a couple decades," said Ken Perkins, president of research company Retail Metrics Inc. "Consumers are tapped out."

Tight consumer spending is hurting not just the retail giants but independent stores as well.

At Wacko, a specialty toy and gift shop in Los Feliz, owner Billy Shire is gearing up for a gloomy holiday season. Usually, he can count on a flood of customers during November and December, but this year, he's not so sure.

"Business has been down all year," said Shire, 57. "I don't know what the heck to expect for the next months and for Christmas. . . . We're just wondering if Christmas is coming -- if anything is coming."

Nationwide, sales rose just 1% in September compared with a year earlier, according to the International Council of Shopping Centers' tally of 36 chains.

"This was the weakest sales growth of any September since 2001, when the industry was in a recession and facing the aftermath of 9/11," said Michael Niemira, chief economist for the shopping center group. He predicted that year-over-year sales for October would also be sluggish.

Heavy markdowns and promotions last month did little to entice wary shoppers, who again reduced discretionary spending in favor of buying only the basics.

As a result, luxury retailers and department stores recorded heavy declines while discounters and warehouse clubs fared better.

But even those with solid sales fell shy of Wall Street estimates.

Wal-Mart reported a 2.4% gain that was slightly lower than the 2.5% analysts had been expecting. The world's largest retailer blamed temporary store closures forced on it by hurricanes for the weaker-than-expected sales.

According to a Thomson Reuters survey, 26% of the retailers it polled beat analysts' expectations in September, while 71% fell short.

Among those that fared the worst in same-store sales were teen retailer Abercrombie, which reported a 14% sales decline companywide; Neiman Marcus, which saw sales decrease 12.9%; and J.C. Penney Co., which posted a 12.4% drop. San Francisco-based Gap, parent of the Gap, Old Navy and Banana Republic chains, posted an 11% sales decline.

One of the few retailers to report strong gains was Los Angeles-based American Apparel Inc., with a 15% year-over-year increase. Costco reported a healthy 7% sales boost but still fell short of analysts' expectations that the warehouse club would see sales rise 7.5%.

There was angst not just among retailers, where products are sold, but at the country's ports, where goods are received. The largest ports in the U.S. are on pace to have their weakest holiday shipping season since 2005.

About 15.4 million cargo containers carrying everything from home furnishings to toys will be shipped to those ports during the holidays, about 1 million fewer than last year, according to consulting firm Global Insight. Each container can carry up to 50,000 pounds of goods.

Sales declines previously centered on big durables, such as cars and heavy appliances, but now have spread to retail products across the board, said Paul Bingham, managing director of Global Insight's global trade and transportation practice.

"This is not a good news story. It's not going to be a seven-year depression, but it is going to feel like one to anyone who is alive right now," said Bingham, whose firm has put off expectations for a sustained U.S. economic recovery until 2010.

As the holiday shopping season approaches, many consumers are expected to stray from their usual gift-giving habits by excluding friends, co-workers and adult family members.

"America is extraordinarily challenged, and I think a lot of parents will forgo giving gifts to one another to give what they normally give to their kids," said Britt Beemer, chairman of consumer behavior firm America's Research Group.

"It's very likely we're going to see negative retail sales for the first time I know of."




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