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Pent-up demand explodes for retailers in March

The best monthly sales performance in a decade is a promising sign of recovery as major chain stores post a 9.1% gain over last year -- much better than expected, according to an industry survey.

April 09, 2010|By Andrea Chang

The nation's retailers had a blowout month in March as shoppers went on a spending spree that increased sales by a record 9.1%, providing the best monthly showing in at least a decade and offering bold new evidence that a strong economic recovery could be ahead.

Robust growth was widespread, fueling excitement from Main Street to Wall Street. Department stores, discounters, apparel sellers and luxury chains reported strong gains, and many retailers boosted their earnings guidance. Retail stocks buoyed the stock market, and economists said they saw promise for the turnaround because consumer spending accounts for about 70% of economic activity.

"Consumers are feeling better and have begun to open their wallets," economist Sung Won Sohn said. "They are willing to buy luxury items, higher-priced items, and they're not as cautious as they were a year ago or even a couple months ago."

"They've been saving money and scrimping and scraping, and now spring is here and the economy is improving, so let's go out and buy," said Sohn, a professor at Cal State Channel Islands in Camarillo and a board member of fast-fashion retailer Forever 21.

More than a dozen major chains posted double-digit gains, including discounter Target Corp., department store Kohl's Corp., luxury chain Saks Inc., mid-priced seller Gap Inc. and teen retailer American Eagle Outfitters Inc. Results are based on sales at stores open at least a year, known as same-store sales, which are considered a reliable measure of a retailer's health.

As the economy has improved, shoppers have returned to the malls ready to spend freely again. At the Grove in Los Angeles, shoppers packed the outdoor shopping center Wednesday, with many toting large shopping bags.

"I spent $500 on a purse -- it took me three minutes," said Jenny Kaufman, a 21-year-old actress from Beverly Hills who'd just bought a black hobo-style bag from Michael Kors. "I'm not having buyer's remorse."

At the Apple store nearby, shopper Jess Winfield was deciding whether to buy one of the company's new iPad e-reader devices.

"It's not like I was hurting last year, but I also wasn't comfortable being lavish and luxurious," said Winfield, a writer from Hollywood. "This year, I feel better about spending money."

Of the 28 retailers whose results were tallied by Thomson Reuters, 92% beat sales expectations. The group's 9.1% sales gain was significantly better than the 6.3% increase analysts had been expecting and marked the best month on record since the company began tracking data in 2000.

Although sales results were helped by an earlier Easter and comparisons with a weak March 2009, when sales declined 5%, analysts said the gains reflected real underlying strength. Pent-up demand, warmer weather and broader economic improvement helped drive spending, they said.

"The fact that retailers vastly exceeded already raised expectations suggests to us that there is more going on here," said Ken Perkins, president of research firm Retail Metrics Inc. "The consumer is feeling better about their situation and is more willing to make discretionary purchases than at any time that we've seen in the last couple of years, since the onset of the recession."

Department stores, a sector that has struggled for years, posted the best results of all major retail categories with a 12.3% year-over-year increase.

Apparel sellers reported an 11.8% gain and discounters followed with a 10.1% increase. The teen sector, which has shown signs of life recently as young shoppers have hit the malls again, reported a 9.6% increase. The exception was City of Industry-based Hot Topic Inc., which saw sales fall 7.5%.

Many retailers said strong sales of spring apparel helped boost their results.

Kevin Mansell, chief executive of Kohl's, which saw March sales rise 22.5%, said "all lines of business and all regions" saw double-digit same-store sales growth. The chain, which raised its first-quarter earnings projection, said the West was one of its strongest regions and said home and children's items as well as footwear were among its top-selling categories.

In New York, the Dow Jones industrial average finished up 29.55 points Thursday, fueled by the retail sales rebound. Shares of Target, Gap and Aeropostale Inc. rose about 3% each.

Industry experts say they will look closely at the combined March-April period to get a better gauge of retail activity, especially because the earlier Easter probably inflated March figures by 4 to 5 percentage points, said Michael Niemira, chief economist at the International Council of Shopping Centers.

He added that although this month's sales figures were promising, there were still significant problems facing consumer spending.

"The overall economy is starting to look a little better," Niemira said. "But there's still a lot of room for growth."

And with unemployment still hovering at 9.7% nationwide, the jobs picture has to improve significantly for strong consumer spending to be sustained, economist Sohn said.

"There's no question that in the last few months, consumer spending has been better than we've expected," he said. "But at the end of the day, you've got to have jobs for consumers to spend more. And right now, they don't have jobs."

Although her family's finances have stabilized since last year, Regina McAleer of San Juan Capistrano said she was still being conservative in her spending.

At the Grove this week, the stay-at-home mom was shopping with her 10-year-old daughter, Natalie, and her daughter's friend Lilli but said the girls shouldn't expect more shopping excursions in the near future.

"It's spring break and we were looking for something to do, so this is a special treat," McAleer said. "The gates haven't opened up, so to speak."

andrea.chang@latimes.com

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