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Retail sales continue to climb in October

Major chains report a 1.8% year-over-year gain, the best showing since June 2008 and the second straight monthly increase as shoppers turned to discounters and high-end stores alike.

November 06, 2009|Andrea Chang

The nation's retailers had their best month in more than a year in October as shoppers turned to discounters and high-end stores alike.

The news helped fuel a rally on Wall Street, where the Dow Jones industrial average surged 203.82 points, or 2.1%, to 10,005.96.

Year-over-year retail sales rose 1.8%, the best showing since June 2008 and the second straight month of gains, according to Thomson Reuters' tally of 30 major chain stores.

In a promising note, upscale chains Nordstrom Inc. and Saks Inc. beat expectations, showing that affluent shoppers may be loosening their purse strings on high-end items.

"Further evidence of retail recovery continues to unfold as October comparable-store sales have outperformed the year-to-date reading in every category," said Michael Niemira, chief economist of the International Council of Shopping Centers.

Retailers are hoping consumers will carry the momentum through the crucial holiday season. But industry watchers warned that a full turnaround was still to come and cautioned that one reason the results were so strong was because it was easy to beat the performance of October 2008, when sales fell 4.1%.

"We're certainly in a consumer recovery, but it's off of considerable lows," Niemira said. "We're sort of scraping our way out of the bottom."

Now the big question is whether shoppers will turn out in force for the holidays. Many are still struggling with unemployment woes, which analysts say will be a huge factor in determining how the season will perform.

At Westfield Culver City, shopper Joyce Via, 66, said she planned to reduce her holiday spending after struggling for months to find work.

"I lost my job in March, so Christmas this year is going to be very tiny," the West Los Angeles resident said.

Terry McQueene, 45, went to Baldwin Hills Crenshaw Plaza last week, but not to shop. Although she has a job as a healthcare assistant, McQueene was picking up applications for seasonal jobs at the mall to supplement her income.

"With money so tight it makes things difficult," she said. "I'm pretty much trying to do without most things."

Not surprisingly, off-price retailers reported the biggest increases in October sales. TJX Cos., parent to the T.J. Maxx and Marshalls chains, reported a 10% gain; sales at Ross Stores Inc. rose 9%.

But key high-end retailers also said their sales were up, leading to the first positive reading for the luxury sector since May 2008, economist Niemira said.

Nordstrom reported a 6.5% increase, better than the 3% gain analysts surveyed by Thomson Reuters had predicted, and Saks posted a 0.7% increase, better than the expected 3.6% drop.

Luxury sellers have struggled this year as consumers avoided designer labels in favor of discounters and mid-price retailers. An improvement in the luxury sector is crucial for an overall retail industry turnaround, analysts said.

"High-end consumers are very important because they really account for a big portion of spending," said Ken Perkins, president of research company Retail Metrics Inc. "If they're starting to spend at Tiffany's and Saks and Neiman Marcus, that bodes well because that trickles down and they'll spend at other retailers."

Despite gains in most sectors last month, there were weaknesses in a couple of major categories: Sales at department stores fell 0.9% while the teen and children's apparel sector missed expectations by posting a 5.8% drop. Several youth-oriented chains reported declines including Abercrombie & Fitch Co. (15%), American Eagle Outfitters Inc. (5%), Hot Topic Inc. (2.6%) and Wet Seal Inc. (1.3%).

Results are based on sales at stores open at least a year, known as same-store or comparable-store sales. They are considered a barometer of a retailer's health.

Todd Slater, an analyst at Lazard Capital Markets, said merchants would again offer compelling markdowns to drive sales this Christmas season, but said the discounts would be planned and "much more rational."

"I don't see anywhere near the same degree of desperation going into the holidays as there was last year," he said. "On the whole I think retailers are going into this season with their eyes wide open and inventories in much better alignment with demand. . . . Last year retailers were caught very flat-footed; this year, they're in much better shape."

At Walmart Stores Inc., which no longer reports monthly sales, company executives are ramping up their holiday efforts by slashing prices on toys, electronics and non-discretionary items.

"We know customers are under pressure, so we're getting more organized behind that to make sure we meet their needs," Steve Bratspies, senior vice president of dry grocery for Walmart's U.S. division, said in an interview.

Michael Francis, chief marketing officer at Target Corp., whose October sales dropped 0.1%, said the chain was "cautiously optimistic" going into the holidays.

"We're certainly feeling better about the coming Christmas than we were at this time last year," Francis said in an interview.

Still, he said, "Consumers are still absolutely stressed. They're being very cautious about their purchases and much more selective, so we have to make sure that we craft a strong link between value and price."

Other merchants said they were more worried.

"This is a brutal economy," said Ted Frankel, owner of five specialty toy shops including locations in Beverly Hills and Montrose. "The fourth quarter is a wild card. I couldn't even tell you what's going to happen there."


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