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Large U.S. retailers struggle in August as sales fall 2.9%

Teen apparel leads the decline, raising concerns about back-to-school shopping and the upcoming holiday buying season. Off-price retailers and discounters provide some good news.

September 04, 2009|Andrea Chang

Many of the nation's largest retailers missed the mark in August, failing to entice back-to-school shoppers despite new fashions and low prices.

Overall retail sales fell 2.9% compared with a year earlier, marking the 12th straight month of declines, according to Thomson Reuters' tally of 30 major chain stores Thursday.

But there were some bright spots in the August report.

Sales fell less than expected -- Wall Street had figured on a 3.8% drop -- and improved from July's 5.1% decline, leading industry experts to surmise that the worst may be over for the battered retail industry.

"It's usually little signs that something's changing. In this case, it's some pickup in discretionary purchases and some pickup in customer traffic," said Michael Niemira, chief economist at the International Council of Shopping Centers, who said the August results were the industry's strongest showing since September 2008. "It's these little pieces that paint a picture of a turning point, and I think that's what we're seeing."

Still, half the retailers surveyed last month missed expectations. Several well-known chains, including teen retailer Abercrombie & Fitch Co. and luxury department-store chain Saks Inc., posted double-digit declines.

So many poor showings create plenty of concern that although the industry may have bottomed out, a full recovery could be months away and consumers could again scrimp during the all-important holiday season.

With an 11.5% decline, teen apparel was the weakest performer overall, a disappointing result for a sector that derives a significant portion of its annual revenue from back-to-school sales.

Analysts said low teen employment this summer and tighter budgets were partly to blame. A later Labor Day holiday is also delaying the start of some schools, which may push some spending into September.

While shopping for school outfits at the Westfield Topanga mall this week, Grace Chuchla, 20, kept an eye on price tags, buying a pair of khakis and two shirts from Gap -- all on sale.

"I follow the news and I keep hearing 'recession, recession, economy, economy,' " the Pomona College junior said. "I'm not immune to it."

Abercrombie & Fitch posted a 29% drop, Wet Seal Inc. reported a 11.2% decline and American Eagle Outfitters Inc.'s sales fell 7%.

Results are based on sales at stores open at least a year, called same-store sales and an important measure of a retailer's health because they exclude the effects of new locations.

Department stores also fared poorly, with sales falling at Saks (19.6%), Macy's Inc. (8.1%) and Nordstrom Inc. (7.6%). In all, the sector saw sales decline 7.1%.

But it wasn't all bad news in August.

One of the month's biggest surprises came from Gap Inc., which posted a 3% decline, better than the expected 7% drop. Sales at its Old Navy chain increased a healthy 4%; analysts had estimated that the brand would see sales fall 6.4%.

The San Francisco company, also parent to the Banana Republic chain, has been undergoing an image makeover in an effort to pull out of a prolonged slump. Last month, Gap stores launched a denim line called 1969 Premium Jeans that company executives are hoping will help the retailer capture a share of the designer denim market.

Sabrina Simmons, chief financial officer of Gap Inc., said in a statement Thursday that customers "responded well" to the company's denim collections in August.

"We were especially pleased by the progress at Old Navy and its strong back-to-school performance, which helped support total company merchandise margins significantly above last year," she said.

Analysts said they were encouraged by the company's recent moves.

"Strong August sales at Gap and Old Navy driven by revamped products reinforce our confidence that the company is at the cusp of a merchandise-led turnaround," Betty Chen, an analyst at Wedbush Morgan Securities, wrote in a note to investors Thursday.

Off-price apparel retailers continued to perform well as consumers looked for affordable fashions.

TJX Cos., parent to the T.J. Maxx and Marshalls chains, reported that sales rose 5%, beating expectations for a 3.9% increase. Ross Stores Inc. saw sales rise 6%; analysts had estimated a 4.3% increase.

Several discounters also beat Wall Street expectations as parents opted to buy school supplies from lower-cost sellers.

Costco Wholesale Corp. reported a 2% decline, better than the 5.7% decline analysts had expected. Sales at Target Corp. fell 2.9%; analysts had expected a 5.1% drop.

"Sales for the month of August were above expectations," said Gregg Steinhafel, Target's chief executive. "Guest traffic in August was essentially flat to last year, marking a meaningful improvement from second-quarter trends."

Industry experts will be carefully watching mall traffic and sales volume in the coming months.

After last year's disastrous Christmas, many retailers have reduced their inventory for this year's holiday season and say they're better prepared to deal with frugal consumer spending.

At a Target in Canoga Park this week, Kristin Campbell, a stay-at-home mom from Oak Park, said she had already started pondering ways to save money during the holidays.

"I'm always thinking of things we can do that we wouldn't have done in the past, like giving as a family or buying something in honor of a family member," she said. "It's not going to be give, give, give; get, get, get. We're just not going to do that."


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