Consumers Still Holding Back : Retailers Fear Weak Back-to-School Sales Bode Ill for Christmas
Hurt by consumers who still have no stomach for spending the economy out of the recession, many of the nation’s largest retailers Thursday reported disappointing sales for August, normally a big month for back-to-school shopping.
With Mom and Dad spending anemically this year to send Junior back to class, some analysts contend that bad news lies ahead for the important Christmas-selling season. But others still believe that December’s cash registers will ring merrily this year, especially compared to last year’s grim Christmas.
August’s results were “a mixed bag, but generally it was pretty lackluster,” said N. Richard Nelson Jr., a retail analyst with Duff & Phelps, a Chicago-based investment research firm. August’s results were poor even when compared to a mediocre August, 1990, when consumers’ worries were growing about the economy and the Persian Gulf crisis.
Discounters and moderately priced retailers had the best month, with Wal-Mart Stores posting a 35% jump in overall sales from August, 1990. Sales at Wal-Mart stores open more than a year rose 10%. (Sales at stores open more than one year--known in the retailing industry as same-store or comparable-store sales--are considered the best indicator of a merchant’s year-to-year performance because the figures aren’t inflated by results from new stores.)
Large general merchandise and department stores fared worse.
“The August numbers reflect a weak back-to-school (period), which is consistent with a weak economy,” said L. Wayne Hood, an analyst with Prudential Securities. Retail sales “are going to remain weak until we see some improvement in income growth and the employment situation.”
Sales picked up late in the month, but warm temperatures nationwide discouraged shoppers from picking up coats, sweaters and other fall merchandise, analysts said.
Wall Street reacted by sending Kmart stock tumbling $3 to $43.50, even though the chain’s same-store sales increased 2.9% and its overall sales rose 8.7%. The Limited lost $2 to close at $25.375. Among merchants posting strong sales, close-out retailer Pic ‘N’ Save jumped $1.75 to $18.75, and the Gap rose $1.50 to $43.50.
Traditionally, back-to-school buying has been the curtain-raiser for the Christmas season, and holiday merchandise is already appearing in some stores.
However, Nelson said the back-to-school season “isn’t what it once was. A lot of kids wait to see what everyone else is wearing before they go out and buy.”
Kurt Barnard, publisher of Barnard’s Retail Marketing Report newsletter, predicted that this year’s holiday season will be much cheerier for retailers than was last year’s.
August sales “indicate clearly that the recession has bottomed out and the consumers are beginning to return to the malls and the stores looking for moderate price tags attached to attractive merchandise displayed in an exciting ambience.”
Based on that reading, “this time Christmas is going to be better,” Barnard said.
Retailers are preparing for the holiday season by keeping inventories tight and watching expenses closely, analysts said. That should translate into improved profits if sales pick up at all, they said.
At Dayton Hudson Corp., which owns traditional department stores as well as the Target and Mervyn’s chains, “we are still approaching fall conservatively” because of the sluggish economy, said President Stephen E. Watson. Dayton Hudson’s same-store sales were up 3.5%, and overall sales increased 8.4% in August.
“Inventories are extremely lean,” Barnard said. “If you see a skirt or a purse or a pair of shoes that you like that is the right size and right color, don’t wait for it to be marked down because if you wait . . . it will be gone or what is left will be the wrong color or size.
“A lot of retailers feel they would rather lose a sale because an item is no longer there than be stuck with extra merchandise after the Christmas season is over,” he said.
Still, analyst David Jackson of Beverly Hills-based H. J. Meyers & Co. expects some good buys.
“Even though inventories are lean, I think sales will continue,” Jackson said. “The consumer has forced retailers into perennial sales.”
Sear, Roebuck & Co. had a 2.9% decrease in same-store sales and a 2.5% drop in overall sales. J. C. Penney Co. said same-store sales fell 5.3%, and overall sales slipped 3.9%. Some major retailers--includinH. Macy & Co., which owns the Bullock’s chain, and Carter Hawley Hale Stores, owner of the Broadway department stores--don’t report monthly sales.
Sears Chairman and Chief Executive Edward A. Brennan blamed his company’s showing on the slow economic recovery but added that double-digit sales increases did occur in women’s sportswear, hosiery, shoes, home computers and automotive accessories. Brennan noted small gains in furniture and some major appliances. Sales in the Northeast were hurt by Hurricane Bob, which forced some stores to close temporarily, he said.
The biggest gains belonged to the Gap, which boasted a 21% same-store sales increase, while its overall sales leaped 42%.
A Disappointing Month Percentage change in same-store sales--those stores that have been open for more than a year.*
Store Percent change Wal-Mart Stores Inc. + 10.0 Sears Roebuck & Co. - 2.9 Kmart Corp. + 2.9 Dayton-Hudson Inc. + 3.5 J.C. Penney Co. - 5.3 F.W. Woolworth (domestic) - 3.3 May Department Stores - 0.4 The Limited Inc. Unchanged Mercantile Stores + 1.9 The Gap Inc. + 21.0 Neiman Marcus Group - 4.8
* Some top retailers do not report sales on a monthly basis, including R.H. Macy & Co., Montgomery Ward & Co. and Carter Hawley Hale Stores. Reporting periods vary slightly and not all retailers have the same fiscal year.
