Major Retailers’ Sales Up Modestly : Pressure Increases for Profitable Christmas, Analysts Say
Retailers posted only modest sales gains during October, leading analysts to speculate Thursday that holiday shoppers will find plenty of bargains.
Department and specialty stores once again fared much better than the four top mass-merchandise chains, which posted sales gains averaging about 3% higher than last October.
For retailers, the persistent sluggishness in sales--year-to-year increases have wallowed in single digits for the past several months--puts more pressure on them to score well this Christmas to salvage revenues and profits. In a similar environment last year, retailers capitulated early with heavy price cutting.
“Commodity merchants are conditioned by sales of durables, and we’re late in that cycle,” said Stanley H. Iverson, an analyst at Duff & Phelps in Chicago. “So all the gains are coming from soft goods, and that’s why department and specialty stores look a little better.”
Sears, Roebuck & Co., the nation’s largest retailer, reported that sales for the four weeks ended Nov. 2 edged up 2.4% from the same period a year ago. In September, it showed a 0.3% gain. Unlike other retailers, Sears reported strong gains in appliances and home furnishings.
Among other mass merchandisers, second-ranked K mart posted a rise of 4.4%; J. C. Penney had a boost of 1.6%, and Montgomery Ward showed a 1% decrease.
Among major department store companies, Federated Department Stores, which owns Bullock’s and I. Magnin, said its sales--excluding those of supermarkets--rose 4.9% for October. For the year to date, the company showed a 6.3% rise.
Carter Hawley Hale Stores, the Los Angeles-based parent of the Broadway and Neiman-Marcus, had a 7.4% rise for the month and a 9.5% increase for the year to date. However, taking into account only those stores open in both reporting periods, the increases were 4.4% in October and 7.3% for the year to date.
Philip M. Hawley, chairman and chief executive, said that sales of items for the home were particularly soft during the month.
While retailers are not exactly panicky about Christmas and, in general, seem to have inventories under control, analysts indicated that two factors argue against a surge in consumer spending: The savings rate is low--about 2%, down from 6% for much of last year--and the level of installment debt is high, with about 18% of total income committed to installment debt, compared to a recent low of 13% in the third quarter of 1982.
“This will be a great Christmas for consumers because they can look forward to before-Christmas sales,” said Kenneth M. Gassman Jr., an analyst with Wheat, First Securities in Richmond, Va.
Gassman noted that retailers ranging from Gimbels in New York to Hechinger, a Washington-based chain of home center stores, started installing Christmas items in early October. “Those are signs that retailers are saying, ‘We have to bring the Christmas season in early this year,’ ” he said, adding: “To me, it’s incredible to start Christmas at the first of October.”
Retailing executives are projecting cautious optimism about the crucial holiday season, which in some cases accounts for as much as half of a store’s annual profits. The Christmas selling period has been shortened by six days because Thanksgiving--the traditional start of holiday shopping--falls late this year.
However, that fact could actually end up helping retailers if customers feel pressed for time and shop early, said analyst David Jackson of Morgan, Olmstead, Kennedy & Gardner in Los Angeles. Jackson projects a “so-so Christmas” with sales gains in the range of 6% to 7% over last December. In the same month last year, retailers averaged gains of about 11% over the previous year.
Analyst Iverson said he foresees a “good Christmas, sales-wise” but remains cautious about what margins will be. “This is the period you make money,” he said. “With almost a week shorter season, there just can’t be any lag, or the retailers could panic like they did last year and put the whole store on sale.”
Some retailers are already acknowledging that Christmas will be difficult. In announcing capital spending plans for Dayton Hudson Corp. last month, Chairman Kenneth A. Macke said that Christmas sales are likely to be very promotional. His Minneapolis-based company is the parent of Mervyn’s and Target stores, among others.
May Department Stores, which operates May Co. California, showed a 0.8% increase in October, after adjustments for calendar differences between 1985 and 1984. Chairman and Chief Executive David C. Farrell said: “Sales remained sluggish during the month. However, as we move into the important fourth quarter, I believe there is an opportunity to see an upswing.”
K mart Chairman Bernard M. Fauber noted that his company has been conservative in its Christmas plans but added that consumer surveys show that confidence remains relatively high. “K mart’s experience has been that when consumers are confident and have jobs, they are generous at Christmastime,” he said.
Major Retailers’ Sales in October
In millions Year % of dollars 1985 ago change Sears 2,295 2,240 +2.4 K mart 1,593 1,526 +4.4 J.C. Penney 910 896 +1.6 Federated* 615 586 +4.9 Wal-Mart Stores 727 544 +34 Dayton Hudson 636 569 +11.7 Montgomery Ward 342 345 -1 May Dept. Stores 372 351 +5.9 Woolworth 256 247 +3.7 R.H. Macy 342 313 +9.2 Assoc. Dry Goods 324 305 +6.1 Carter Hawley Hale 324 302 +7.4
*Excludes supermarket sales.
Figures not adjusted for calendar year differences.
