Consumers pummeled by high gasoline and food prices flocked to the nation's discount stores for the back-to-school season, leaving department stores and other sectors struggling throughout August.
Demand for necessities helped chains such as retail giant Wal-Mart Stores Inc. perform above expectations, while discounts and promotions at several apparel and teen businesses coaxed some discretionary spending out of shoppers, the stores reported Thursday.
Still, analysts said consumers might continue to buckle down and save straight through winter, intensifying their bargain hunting during holiday and post-Christmas shopping.
"We're looking at a muted holiday season, where shoppers are procrastinating until things go on sale," said Betty Chen, an analyst with Wedbush Morgan Securities. "And with five fewer days between Thanksgiving and Christmas, it'll be critical for retailers to drive as much sales as possible before then."
Overall, same-store sales numbers for August that were released Thursday showed that retailers saw sales swell 1.7%. But the average stalled at the August 2007 level when Wal-Mart's data is excluded, according to the International Council of Shopping Centers' tally of 36 stores.
Several chains, such as City of Industry-based Hot Topic Inc., performed better than expected, but only because expectations were low to begin with, analysts said. J.C. Penney beat estimates by 1.4%, but still saw sales droop 4.9%. The 8% fall at Gap Inc. was slightly less steep than the forecasted 9.7%.
The rocky summer encouraged pessimism, several analysts said, with the unemployment rate at a 12-year high, July's inflation surging to a 17-year peak and the Federal Reserve painting a dour portrait of a "soft" and "subdued" economy in a report Wednesday.
The Dow Jones industrial average plummeted nearly 350 points Thursday after the release of the retail numbers and a Labor Department announcement that last week's new applications for unemployment insurance rose 15,000 from the week before.
Margaret Rodriguez, 65, a retired office manager from Alhambra, stopped by a Mervyns department store Thursday because she thought the store was having a buy one, get one free sale.
Nowadays, Rodriguez says, she only ventures into upscale retailer Nordstrom to look at merchandise, never to buy. She's downsized to discount chains, where she scours 80%-off racks for deals and pairs all her purchases with coupons.
