Retailers’ Holiday Season Might Not Be Very Bright

Prospects for a strong holiday season grew dimmer Thursday after the nation’s largest retailers reported generally disappointing sales results for October.

While many specialty apparel retailers including Talbots, Wet Seal Inc. and Limited Inc., enjoyed healthy sales, many other stores languished amid slowing consumer spending.

“Don’t count on the consumer,” said retail industry analyst Jeffrey Feiner of Lehman Bros. “They’re not buying. I think the holiday season will be less than stellar.”

October sales are traditionally slow because of heavy promotional activity and markdowns to make room for holiday merchandise, but many industry executives believe retailing’s problems run much deeper.

Some stores tried to put a positive spin on October’s lackluster results, blaming them on such temporary factors as unseasonably warm weather in the Northeast and a lack of must-have fashions.

The weak sales environment prompted a number of companies, including Wal-Mart Stores Inc., the world’s largest retailer and usually one of the industry’s best performers, and jeweler Zales Corp. to lower their sales expectations for the holiday season.

And J.C. Penney Co., which did not meet its sales target for the month, said it expects its third-quarter earnings loss to at least double from recent forecasts.

“There is clearly something fundamental going on here,” said Michael P. Niemira, vice president of the Bank of Tokyo-Mitsubishi Ltd.

Niemira and others noted that a drop in consumer optimism has raised concerns that the holiday season will be difficult. On Tuesday, the Conference Board said its consumer confidence index fell sharply during October, indicating that Americans are becoming more conservative about spending.

The Bank of Tokyo-Mitsubishi retail sales index, which tracks sales at about 80 store chains, rose 3.2% last month from October 1999, when the index rose 5.7%. From January through October, the index rose 4.6%, compared with 7% in the year-ago period.

Analysts were particularly surprised by the disappointing sales results from discounters, which are seen as the bellwethers in consumer spending. Wal-Mart blamed its lower sales projections for the fourth quarter on declining traffic in its stores. It now expects its sales growth to be in the range of 3% to 5%, below analysts’ expectations of 4% to 6%.

However, Wal-Mart reported a 4.9% increase in October sales at stores open at least a year, meeting Wall Street targets. Shares of Wal-Mart were up 3.8%, or $1.75, to close at $48.44 on the New York Stock Exchange.

Meanwhile, many department stores continued their sluggish sales pace, grappling with fewer customers and heavy markdowns that eroded their profits. These retailers have been unable to find a fashion look that works--even this year’s better-selling suits and leather haven’t matched the success of last fall’s pashmina shawls and fleece.

Clearly, the specialty store retailers were the winners last month. A big exception was Gap Inc., which reported Wednesday its same-store sales fell 2% for the month. It also warned that fiscal third-quarter sales would be below Wall Street estimates.

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Reuters was used in compiling this report.