Clothing Sellers See Drop in August Sales

The start of school failed to loosen purse strings in many U.S. households last month, meaning a disappointing drop in August sales for most clothing sellers and only modest sales increases for much of the rest of the retail industry.

Aggravating the situation this year, said Todd Slater, a retail analyst with Lazard Freres in New York, many apparel sellers had not cleared out spring and summer merchandise. That meant lots of cheap leftovers at the same time overall consumer demand has waned.

It’s not that consumers have stopped shopping. Purchases of durable goods, such as consumer electronics and appliances, remained strong, boosting sales at stores such as Sears Roebuck & Co. Sales of lower-priced seasonal goods, such as clothing, were mostly off, dealing a blow to department stores and Gap Inc.

“Back to school has been happening less and less every year,” Slater said. “Kids don’t want to buy their entire wardrobe at the beginning of the season; they want to wait and see what other kids are wearing. Parents buy when there are good sales and that occurs throughout the year.”

As a whole, retail sales grew a scant 3% in August over the same period a year ago, according to Goldman Sachs. That number was disheartening to many retailers, which had hoped for a return to the boom times of last year. Instead, they got a continuation of the sluggish sales of the last few months.

Same-store sales at specialty clothing stores and off-price sellers fell a combined 2.4% compared with the same period last year, as tallied by Goldman Sachs. Department store sales were essentially flat, falling 0.8%, off from an estimate of a 1.8% gain.

Sales at surf clothier Pacific Sunwear of California Inc., based in Anaheim, were down 2.5%. The company said third-quarter profit may fall short of analysts’ expectations because of merchandise markdowns and slow sales.

Pacific Sunwear shares fell $1.56 to close at $13.31 on Nasdaq.

Abercrombie & Fitch, former darling of both Wall Street and teenagers, reported sales off 3% compared with last year.

Abercrombie shares fell $2 to close at $23.19 on the New York Stock Exchange.

Last month, Gap warned investors about sales weakness and earnings misses, particularly at its Old Navy stores. Goldman Sachs said Old Navy’s same-store sales declined a whopping 27% to 29%; Gap domestic stores sales were down 5% to 7%; Gap international sales fell 7% to 9%; and Banana Republic dropped 1% to 3%.

Gap shares fell to their lowest level in nearly two years, dipping 25 cents to close at $22.25 on the NYSE.

While Gap, the nation’s second-largest specialty retailer suffered, its larger competitor thrived. Limited Inc. posted a 6% sales gain for August, which included a 15% gain at its revamped Express stores and a 13% sales rise at Lerner stores.

Discount sellers, such as Wal-Mart Stores Inc. and Kmart Corp., were able to trade on their value formula, gaining 5% as a group during August, compared with a gain of 7.8% in the same period a year ago.

“You’re going to have a lot of losers in this environment,” said retail analyst Michael Niemira of the Bank of Tokyo-Mitsubishi in New York. “It’s the nature of the shrinking demand pie.”

What is puzzling about consumers’ latest habits, Niemira said, is that in a softer economy shoppers usually buy clothes and other lower-priced items and forgo big-ticket purchases. The opposite is happening now.

Sears posted a 5.6% same-store gain mostly from healthy sales of appliances and other hard goods, though it, too, suffered weak apparel sales.

Luxury sellers fared well, with Neiman Marcus posting an 8.1% same-store sales gain. Women’s specialty chain Talbots also gained, posting a whopping 18.5% increase in stores open at least a year.

Same-store sales are considered an important measure of a company’s overall performance because the figure excludes new and closed stores.

Wisconsin-based Kohl’s, often touted as the best of the moderate-price department store operators, posted a 9.1% sales gain--bucking the stuck-in-the-middle blues suffered by J.C. Penney Co., which fell 4.5%.

Longtime winner Target Corp., posted just a 3.2% gain--the result of lagging sales at its department stores, including Dayton Hudson. Target’s Mervyn’s division, however, gained 3.7%.

Weak August numbers prompted Target, J.C. Penney--and a host of other companies--to warn about possible sales and earnings shortfalls for the rest of the year.

On the New York Stock Exchange, shares of J.C. Penney fell $1.17 to close at $14.02 in after-hours trading, and Target shares fell $2.88 to $23.19.

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Summer Doldrums

Back-to-school shopping, traditionally a time of heavy apparel sales, was a bust in August for clothing retailers. But sales at discount stores were up, as were sales of durable goods such as refrigerators and dishwashers.

Retail composite indexes

Percentage of sales gained or lost in August compared with a year ago

Discount stores: +5%

Department stores: -0.8%

Specialty apparel/off-price stores: -2.4%

Source: Goldman Sachs & Co.