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Retail sales fall 5.1% in July despite back-to-school lures

Major names report double-digit percentage drops as shoppers hesitate. A few bargain chains manage gains.

August 07, 2009|Andrea Chang

The start of back-to-school season failed to entice consumers in July, providing another dismal report card for the underachieving retail industry.

The continued weakness -- a result of consumer anxiety about job security and falling home values -- could signal trouble for the all-important holiday season. And with consumer spending accounting for about two-thirds of U.S. economic activity, it also raises doubts that the economy is poised for a rebound any time soon.

"The consumer is still under pressure and things were really sluggish again," said Ken Perkins, president of research company Retail Metrics Inc. "It was just too much for the retailers to overcome."

Total retail sales fell 5.1%, according to Thomson Reuters' survey of 30 major chain stores. That was worse than the negative 4.6% average for the year through July and marked the second-weakest month for retail sales in 2009, the information company said.

There were significant double-digit sales declines at such popular chains as teen retailer Abercrombie & Fitch Co., which posted a 28% decrease; luxury chain Saks Inc., down 16.3%; and American Apparel Inc., the Los Angeles chain known for its colorful basics and racy ads, with a 13% drop.

At South Coast Plaza in Costa Mesa this week, Diane Bushly left empty-handed except for a dessert she bought for $3. These days, the auditor instructor from Denver said, "we're lookers, not shoppers."

"I look at it and say, 'Do I really need it?' " she said of her recent shopping habits. "If I don't, then I don't buy it."

Sales last month were hampered by lean inventories, colder-than-usual weather in some regions of the country and a shift of sales-tax holidays from July to August in most of the dozen or so states that have them.

Perkins also suspected that consumers who bought new cars through the government's "cash for clunkers" program could be shutting their wallets to other discretionary purchases.

"An additional $300, $400 in car payments a month is going to come out of somewhere," he said. "My guess is that'll siphon some money away from traditional mall-based retailers."

The retail picture seemed particularly weak on the West Coast, said Betty Chen, an analyst at Wedbush Morgan Securities in San Francisco.

Several retailers "did call out the West as one of the slower regions for them," she said. "Because of the housing market and unemployment, we're trending above the national average, so that continued to hurt many companies because spending continues to be down."

Results are based on sales at stores open at least a year, known as same-store sales and considered an important measure of a retailer's health. The sales report doesn't include Wal-Mart Stores Inc., which has stopped posting monthly shopping numbers.

Retail experts are hoping that back-to-school season, which started in July and is now in full swing, will motivate parents to hit the malls with their kids for clothes and other school-related items.

But many parents said that this year, thrifty is in. Teen apparel was the worst-performing sector last month, Thomson Reuters said.

"We haven't spent any money yet and he's starting school next week," Brigitte Meyer, a stay-at-home mom from Valencia, said of son Jonathan, 8, while browsing at South Coast Plaza this week. "We just have not been shopping."

Shawn Filbin, who has three children between ages 10 and 14, said there was no shame in cutting back anymore because "so many people are doing it."

"We're going to get a few things, but there's not going to be a big spending spree," she said of her family's back-to-school plans.

Still, Chen said parents could just be waiting until later to begin their shopping.

"I think the bulk of the spending will happen when teens and parents really need it," she said. "We might see a lot of the spending push into September of this year."

Not surprisingly, retailers that sell relatively inexpensive goods saw the best results. Ross Stores Inc. and TJX Cos., which operates off-price chains T.J. Maxx and Marshalls, both performed better than analysts had projected with sales increases of 4% each.

Kohl's Corp. beat expectations for a 3.2% sales decline by posting a 0.4% increase; the company subsequently raised its quarterly outlook. Chief Executive Kevin Mansell said in a statement that the chain had strong same-store sales increases in accessories, home goods and footwear.

But sluggish consumer spending still hit value retailers such as Costco Wholesale Corp., which reported a 7% drop, and J.C. Penney Co., with a 12.3% sales decline.

Retailers said that despite the tough economic climate, they were still looking for ways to attract shoppers.

Classic apparel brand Gap is officially rolling out a line of premium denim next week that the company hopes will boost sales and improve its clout with trendy young shoppers. Its parent, Gap Inc., also operates the Banana Republic and Old Navy chains and reported that sales fell 8% last month.

Although many retailers have moved away from the massive discounts seen early this year, consumers with stable financial situations said it's still a great time to shop.

At South Coast Plaza this week, upscale retailers including Emporio Armani, Barneys New York Co-Op and Charles David were advertising their latest sales with signs and window displays.

"I've spent more in the last year than I have in my entire life," said Pamela Graham, 52, a merchandiser for DKNY who shopped at South Coast Plaza and Newport Beach's Fashion Island in the same day. "I make the same amount of money, so as long as I don't lose my job, I keep spending."

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andrea.chang@latimes.com

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