Rise in Consumer Debt Blamed as Big Retailers Report Slow July Sales
The nation’s major retailers Thursday reported lackluster sales increases for July from a year ago, indicating that many consumers had reached the limits of their borrowing capacity. Analysts said the disappointing string of sales results over the past few months signals that the second half will continue to be a tough one--characterized, like last year’s, by price promotion.
The July sales picture ranged from a 5% sales decline for Montgomery Ward, the Chicago-based unit of Mobil, to a 35% gain for the rapidly expanding Wal-Mart.
Overall, general-merchandise chains such as Sears, Roebuck & Co., K mart and J. C. Penney posted the most disappointing results. Most retailers operated below expectations for the month.
Analysts said the July results were even more sluggish than indicated by the reports because a calendar change in reporting periods gave some stores an extra day in the latest period.
Sluggish Spending Seen
Walter Loeb, an analyst at New York-based Morgan Stanley, said retail sales have been more sluggish than anticipated despite a static inflationary climate.
He said in a recent report that consumers have overspent and are “unlikely to step up the pace this fall and winter--an outlook that is borne out by the current ratio of consumer debt, at 17.9% of disposable personal income the highest since the 1970s.”
He added that many retailers’ accounts receivables showed delinquencies in the second quarter of 1985.
Philip M. Hawley, chairman and chief executive of Carter Hawley Hale Stores, said: “The retail sales environment continues to be difficult, with customers reluctant to assume more debt. Big-ticket items for the home were particularly slow sellers during the month.”
Carter Hawley’s July sales were up 12.7%. Taking into account only those stores open for a year or more, the sales rose 10.6%. Sales for the year to date were up 10.9%, or 9.3% on a store-for-store basis.
Sears, the nation’s largest retailer, said sales declined 3% from a year ago. Edward R. Telling, chairman and chief executive, said July sales reflected continuing softness in the economy and highly competitive conditions in the general-merchandise industry.
The Chicago-based retailer is expected to kick off a new round of aggressive price promotions for fall and winter. Loeb said he expects the promotions, known internally at Sears as “extra effort 1985,” to kick off a wave of similar promotions by other mass-merchandise and department stores.
“They are really rolling out the big guns,” Loeb said.
K mart said July sales rose 4.5% but were down 5.9% when adjusted for stores open 12 months or longer. Chairman Bernard M. Fauber appeared to be more optimistic than some of his competitors. He noted that consumer interest in fall fashions and improved levels of confidence “indicate that an increase in sales will be experienced in the important latter half of 1985.”
New York-based J. C. Penney reported that July sales were down 0.6%. Montgomery Ward suffered a 5% drop in sales from a year ago, excluding catalogue operations and Jefferson Ward Stores, which will be sold.
F. W. Woolworth said domestic sales were up 5.3% in July. Federated Department Stores, parent of Bullock’s and I. Magnin, said sales, excluding those of supermarket stores, rose 8% from a year ago. Howard Goldfeder, chairman and chief executive, said that “the retail environment remains difficult, and sales in the general-merchandising divisions continued below expectations. As in previous months, the year-to-year comparisons were significantly affected by differences in the business calendar.”
Dayton-Hudson, which operates the Target and Mervyn’s chains in California, said July sales were up 21.2%. Chairman and Chief Executive Kenneth A. Macke said that “July is traditionally a light, in-between-seasons sales month. We had a good sales increase for the month, but we don’t see any fundamental upward movement in consumer spending, and customers continue to be very value conscious.”
May Department Stores said sales were up 10.6%.
Major Retailers’ Sales in July
In millions Year % of dollars 1985 ago change Sears 1,716 1,772 -3.0 K mart 1,521 1,456 +4.5 J. C. Penney 803.0 808.0 -0.6 Federated* 492.8 445.4 +8.0 Wal-Mart Stores 640.0 475.0 +35.0 Dayton-Hudson 560.2 462.3 +21.2 Montgomery Ward 318.4 335.2 -5.0 May Dept. Stores 308.4 278.7 +10.6 Woolworth 235.6 223.8 +5.3 R. H. Macy 234.0 225.7 +3.7 Assoc. Dry Goods 249.3 223.2 +11.7 Carter Hawley Hale 249.5 221.4 +12.7
*Excludes supermarket sales.
