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Retail sales climb in October, but Sandy clouds outlook

Major retail chains post a 2.7% rise in sales in October, meeting analysts' expectations. But the effect of Sandy on holiday season results remains to be seen.

November 02, 2012|By Shan Li, Los Angeles Times
  • Rising home sales and a rallying stock market have boosted consumers’ confidence and willingness to buy, industry experts say. Above, shoppers on Rodeo Drive.
Rising home sales and a rallying stock market have boosted consumers’… (Gary Friedman, Los Angeles…)

Shoppers handed retailers a healthy sales gain in October before Sandy pummeled the East Coast, but questions remain about how recovery efforts after the storm will affect holiday spending.

Rising home sales and a rallying stock market have boosted consumers' confidence and willingness to buy, industry experts say. But retailers are waiting to see whether shoppers who must replace cars and repair or rebuild homes will still be able — or in the mood — to splurge on gifts during November and December.

"October was relatively good given some of the distractions leading up to the presidential election," said Ken Perkins, an industry expert at Retail Metrics Inc. "But what percentage of discretionary income is channeled away from holiday spending toward rebuilding — that remains to be seen."

Quiz: How much do you know about California's economy?

In Beverly Hills, thousands of miles from the storm, shoppers said Wednesday that they were looking forward to opening their wallets more often this holiday season. Many said their finances have improved over the last year.

"I'm feeling more comfortable, my income is up and I've been getting more work," said actor Alejandro Franco, 36, from Mid-Wilshire. He had just spent $500 on a pair of shoes, a wallet and cologne. "There just seems to be more jobs out there for people."

Major chains posted a 2.7% increase in retail sales in October compared with a year earlier, on par with analysts' forecasts, according to Thomson Reuters' tally of 18 retailers. Excluding drugstores, retail sales were up 4.7%, exceeding expectations of 4.3%.

Top performers were a broad mix of stores. Luxury chain Nordstrom reported a strong 9.8% jump. Discount retailer Costco Wholesale Corp. and off-price chain TJX Cos. both said sales rose 7%.

Macy's Inc., which posted a 4.1% rise, said more than 200 Macy's and Bloomingdale's stores were closed for a time during Sandy. "The company is confident that we can make up some or most of the lost sales through the remainder of the quarter," Chief Executive Terry J. Lundgren said in a statement.

Other retailers posted weak results. Struggling teen clothier Wet Seal, which recently went through a board shake-up after more than a year of falling sales, reported its sales fell 7.6%.

Results in the Thomson Reuters survey 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 because it excludes the effect of stores' openings and closings.

Even in the best years, October is a slow time for merchants as they gear up for the holidays, so the month is not necessarily a good predictor of future consumer spending, analysts said.

This year, many retailers closed the books on October last weekend, so the full effect of the storm — including shoppers stocking up on supplies and stores closings — wasn't factored into the tallies. November should offer a clearer picture of the storm's aftermath and its effect on the crucial holiday season, when retailers can rake in 40% or more of their annual sales.

For months, encouraging economic data have pointed to decent sales in the last months of the year.

On Thursday, the Conference Board said consumer confidence in October surged to its highest level in more than four years. Payroll processor ADP also reported that private companies beat expectations by adding 158,000 jobs last month. The national unemployment rate for October, the last before the presidential election, will be released Friday.

Despite the good news, experts say that Sandy has created uncertainty going into the holiday retail season. Some predict that clothing retailers will be hurt, while general merchants and home-improvement chains will see a lift.

"When you have a hurricane, it devastates the apparel stores because you won't go without food or essentials but you can delay or not buy apparel during the cleanup," said Britt Beemer, a retail expert at America's Research Group.

At worst, Beemer said, Sandy could knock the holiday season into negative numbers. "Those retailers closed in the Northeast will see a terrible impact on sales," he said. "You might have a 5% to 6% reduction in overall sales in November."

Other analysts say it's too early to predict what the storm and its aftermath will do to spending. Consumers are just now filing insurance claims on storm damage. Others are waiting to go back to work.

"It depends on how quickly the East Coast recovers," said James Rushing, a partner in the retail practice at consulting firm A.T. Kearney. "It's hard right now to drive around some areas from Pennsylvania through Massachusetts. It's hard to get to stores."

At the Beverly Center on Wednesday, Regina Schultz, 53, said economic turmoil over the last few years has taught her to be smarter about managing finances. The Beverly Hills nurse said she looked forward to buying a few more presents for her two kids this Christmas.

"Some credit cards are getting paid off and I'm just getting better with money," she said. "So that means I have more now."

shan.li@latimes.com

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