Markdowns fail to pump up spending

By Andrea Chang

Dec. 5, 2008 12 AM PT

Chang is a Times staff writer.

The frenzy of a much-hyped Black Friday failed to rescue retailers from a months-long slump, as November sales figures released Thursday showed yet another steep drop-off in consumer spending.

What was a disaster for retailers, however, could mean even more bargains for those consumers who have money to spend despite the recession. Many day-after-Thanksgiving-type sales haven’t stopped, and experts say these promotions are sure to continue through the holiday season -- at a high cost for retailers.

Nordstrom Inc., which saw November sales fall 15.9% over last year, is still marking down merchandise and matching its competitors’ prices. And the upscale chain has placed signs around its stores that indicate it means business: “Never pay more. We regularly shop other stores to be sure we have the lowest price on like items.”

“Our forecast right now looks like things won’t improve dramatically, so we’ll continue to have value on the floor,” said Nordstrom spokeswoman Brooke White. “Everybody’s got the same interests at heart, we all want to sell merchandise.”

Other stores are also aggressively vying for customers. At Kohl’s Corp., competitive prices are key, Chief Executive Kevin Mansell said Thursday. “Consumers are focused on value, and we have incorporated that into our promotional efforts through the end of the year,” he said.

Jerry Storch, CEO of Toys R Us Inc., said in an interview on Black Friday that the chain would continue to keep prices low “all the way to Christmas.”

“No one could have predicted what occurred in terms of the financial crisis, but we’ve been planning all year to take an aggressive stance during the holiday season,” he said.

According to a tally of 37 major retail chains conducted by the International Council of Shopping Centers, sales at stores open at least a year -- a measure of retail health known as same-store sales -- fell 2.7% in November over last year. Only a handful of retailers, including discount giant Wal-Mart Stores Inc., showed gains while most apparel and luxury stores tanked.

It was the worst month for retailers since at least 1969, when the index began. Excluding Wal-Mart, sales registered a huge 7.7% drop.

Retail experts said it could have been worse. Thanks to a better-than-expected Black Friday, “the November results were terrible instead of being completely horrific,” said Ken Perkins, president of research company Retail Metrics Inc.

The dismal results cast further doubt on the holiday season and renewed fears that many retailers were cutting prices so much that they could be forced to fold early next year. But retailers have few options, Perkins said.

“There’s no question this is affecting their bottom line and cutting into their margins,” he said. “But they really don’t have another choice. If you don’t discount, no one’s coming into your store and you’re not making money anyway. So some revenue stream is better than none at all.”

Wal-Mart, the world’s largest retailer, posted a 3.4% sales gain in November, excluding fuel. The company has benefited as cost-conscious shoppers, concerned about the economic crisis, forgo more expensive retailers in favor of the discount chain.

But Costco Wholesale Corp., which sells many household goods in bulk, missed expectations. The wholesale club’s sales fell 5%; analysts had expected a 2.4% drop.

Many retailers blamed their weak results partly on the late arrival of Thanksgiving, which meant the month’s reporting did not include a week of post-holiday shopping, unlike the year-earlier period.

For months, retailers have faced tough conditions. And although shoppers turned out in droves for Black Friday specials, merchants said store traffic and sales dropped off over the weekend, suggesting that consumers opted to stay home once the jaw-dropping deals ended.

Now, new concerns are mounting that consumers won’t come out in force again until the weekend before Christmas, which would further stall the faltering economy.

Consumer spending accounts for more than two-thirds of U.S. economic activity.

And when shoppers do hit the stores, they’re mainly hunting for bargains and purchasing less expensive items.

“We’re still seeing a lot of people in our stores, but they’re buying less,” Nordstrom’s White said. “If they bought three items last year, now they’re buying one.”

Many consumers also have cut friends and family members from their holiday shopping lists and have started buying gifts earlier.

Nickie Johnson, 41, an unemployed banker from Los Angeles, said she started buying Christmas gifts in October so she could purchase only items that were on sale. While shopping at a Ross in Los Angeles, Johnson said she also has cut back on buying higher-end outfits and nonessential items.

“I find that I come here more often now, because I can meet my budget here,” she said Thursday. “I can’t hit the malls as much anymore. I’m buying more in bulk, checking the papers and cutting coupons. I’ve found smarter ways to shop.”

One of the weakest performers was Abercrombie & Fitch Co., which has consistently been among the bottom of the pack for several months.

Unlike its competitors, the teen retailer has resisted deep discounting. But experts say a refusal to offer significant markdowns on its pricey apparel could permanently damage the company.

“Abercrombie better get their act together or they won’t be around next year,” said Britt Beemer, chairman of consumer behavior firm America’s Research Group. “Here’s a company that’s oblivious to the world. They don’t want to run sales to protect their brand, but there might not be any brand left. They better get real.”

Although deep discounts in November didn’t translate into year-over-year sales gains for many stores, it did allow some of them to exceed Wall Street’s expectations.

Luxury retailer Saks Inc., which held a massive sale last month, with designer merchandise discounted as much as 70%, was one of the biggest surprises. The chain outperformed many of its competitors and saw its sales fall 5.2% in November, much better than the 16.2% drop that analysts had forecast.

Attractive markdowns also helped San Francisco-based Gap Inc., parent of the Gap, Banana Republic and Old Navy clothing chains. Wall Street had predicted a 17.4% drop, but the company beat expectations with sales falling 10% compared with the year-earlier period.

“In anticipation of a challenging holiday season, we made the decision to attract customers with more aggressive offers than last year,” Sabrina Simmons, chief financial officer of Gap Inc., said in a statement. “While this resulted in November merchandise margins below last year, our strategy allowed us to successfully clear through inventory in the month.”

Retailers will continue to face challenging times ahead. Analysts are now worried that the retail environment could get even worse once the holidays are over.

“What’s really concerning us is what’s going to happen in January, February, March,” Perkins said. “Those have the potential to be really ugly, because there’s no catalyst on the horizon to spend.”

andrea.chang@latimes.com

Times staff writer Tiffany Hsu contributed to this report.

(BEGIN TEXT OF INFOBOX)

Dismal month

Year-over-year percentage change in November sales at stores open at least a year

Company: Change

Hot Topic: +6.5%

American Apparel: +6.0

Wal-Mart: +3.4

Ross: -2.0

Costco Wholesale: -5.0

Saks: -5.2