Bargain shopping pushes up sales
Alfredo Cardona of Santa Ana has always liked buying his clothes at Nordstrom, but lately he switched to Burlington Coat Factory, where the prices are lower.
The 24-year-old financial advisor said he now shopped “anywhere you can save.” And he’s not alone.
Retailers Thursday posted moderate sales results for June as shoppers kept spending but tried to get more for their money.
Wall Street celebrated the sales report with major gains, seeing evidence that the retail economy was not collapsing amid a nationwide housing downturn. But retail experts also saw an increased price consciousness among consumers.
Sales dropped on average at department stores but rose more than expected at warehouse stores such as Wal-Mart Stores Inc.’s Sam’s Club and BJ’s Wholesale Club Inc.
“I think it’s a story of price,” said Michael Niemira, chief economist for the International Council of Shopping Centers. “With a softer feel to the economy, there’s been a shift to the discounters and wholesale clubs.”
Sales at stores open a year or more, a key measure of retail performance also known as same-store sales, rose 2.4% to $71.3 billion, which was better than expected but down from last year’s 3% gain, according to the shopping center council’s tally of 50 major chain stores nationwide.
Consumers are fretting over a variety of problems, retail experts say, including the slowing housing market and higher prices for food and gasoline.
“You never know, week to week, am I going to put $50 in my car, or is it going to be $35?” said Phil Rist, vice president of strategy for BIGresearch, a consumer intelligence firm that surveys 8,000 shoppers a month. “The average consumer starts thinking, ‘What’s next? Maybe I just need to slow down a little bit.’ ”
Maria Morales, a 37-year-old mother of six from Santa Ana, has found ways to trim spending. She buys shoes at Payless ShoeSource, food at 99 Cents Only Stores and clothes at Susie’s Deals, where $5 will get you two tank tops, a pair of jeans or a Hawaiian shirt. She shops “wherever there’s a discount,” Morales said.
While shoppers have shown they are resilient, they also are proving to be more cautious.
Economist Scott Hoyt predicts that overall retail sales, excluding autos, will rise 4.2% this year, compared with 7.3% in 2006. Next year, he anticipates growth will slow further to 3.2%.
Generally, it takes a couple of years before the full effect of shrinking household wealth -- or the so-called wealth effect -- translates into slower spending, Hoyt said. The effect will probably “be greatest in the second half of this year and into the first half of next year,” he said.
Refinancing to pull cash from home equity remained “quite active” through the first quarter, Hoyt said, but “again, it’s a situation where we feel the worst is yet to come.”
June, however, wasn’t as bad as some retail gurus were expecting. And it’s an important month, during which retailers cut prices so they can move merchandise and make way for back-to-school offerings. Typically, June is the second-largest sales month, after December.
Some retailers made the most of it.
As a group, warehouse stores posted a sturdy 6.3% jump. Discounters advanced 2.1%, outpacing the group’s average 1.1% gain this year.
But department stores collectively slid 2.5%. Of the 47 chains monitored by Thomson Financial, 53% missed expectations. Some California companies joined those that slipped.
San Francisco-based Gap Inc., which operates more than 3,100 Gap, Old Navy and Banana Republic stores, logged a 5% same-store sales drop, and City of Industry-based Hot Topic Inc. fell 4%, less than the 6.7% that was expected.
Pacific Sunwear of California Inc. bested analysts with a 4.5% gain. But the Anaheim retailer trimmed second-quarter profit estimates slightly, partly because of “a more promotional environment.” It now expects earnings of 16 cents to 18 cents a share, a shade lower than the 18 cents that Wall Street anticipated.
Department store giant Macy’s Inc. took a more sizable whack at its second-quarter profit projections after its same-store sales slipped 2.7% in June. The parent of the Macy’s and Bloomingdale’s chains said it now expected to earn 20 cents to 30 cents a share, rather than the 35 cents to 45 cents it had predicted earlier.
Sears Holdings Corp., which operates the Sears and Kmart chains, cut its second-quarter profit expectations this week, and Home Depot Inc. warned that its annual profit might fall 15% to 18%.
The world’s largest retailer didn’t disappoint in June. Wal-Mart said grocery sales helped advance its same-store sales by 2.4%, as its Sam’s Club division bounced ahead 6.9%. The company also rang up solid sales of computers, MP3 players and flat-screen televisions.
Eduardo Castro-Wright, chief executive of Wal-Mart’s U.S. division, said in a statement that consumers today were “challenged financially.”
“Gas prices have moved to be their chief concern in our latest survey, and they appreciate the opportunity to save on everything,” he said.
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By the numbers
Major retail chains posted a better-than-expected 2.4% gain in same-store sales for June, surveys say. Wholesale clubs reported strong results as department stores generally lost ground from a year earlier.
Year-over-year percentage change in June sales at stores open at least a year
*--* Company % change Neiman Marcus +6.4 Ross +5.0 Pacific Sunwear +4.5 Target +3.3 Wal-Mart +2.4 Nordstrom +2.0 Wet Seal +0.7 J.C. Penney -1.5 Macy’s -2.7 Hot Topic -4.0 Limited Brands -4.0 Gap -5.0 Bebe -5.4 Saks -5.6 Sharper Image -7.0
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Sources: Thomson Financial, International Council of Shopping Centers, Times research
