Discount Sales Up; Department, Specialty Stores Struggling

Consumers, worried about layoffs and shrinking stock portfolios, continued their love affair with discounters in July, leaving other top merchants with disappointing sales results.

As retailers reported sales figures Thursday, it was clear that value-oriented stores were the primary beneficiaries of a sales surge in recent weeks that some analysts attributed to the first wave of tax rebate spending and aggressive pricing.

Department stores, particularly Saks Inc. and Neiman Marcus Group Inc., and apparel chains including Gap Inc. and the Limited Inc., suffered again, languishing amid piles of discounted summer apparel.

Retailers catering to teens had mixed results, leaving analysts uncertain about the back-to-school season.

Teen retailer Abercrombie & Fitch Co. reported a 14% drop in sales from stores open at least a year, or same-store sales, and issued a cautious outlook for the remainder of the year.

Same-store sales are considered the best indicator of a retailer’s health.

Gap, the No. 1 U.S. apparel retailer, posted a drop of 12% in same-store sales, much worse than the 4% to 9% decline analysts had expected. The San Francisco company also said it may cut another 790 jobs in addition to the 1,300 cut in July, in an effort to bolster profit.

The cuts include 300 jobs at Gap’s distribution center in Ventura, which the company slated for closure in June. A distribution center in London also is being shuttered.

A Gap spokeswoman said all employees affected will be offered transfers within the company.

Wal-Mart Stores Inc. reported a 6% rise in sales at stores open at least a year. The No. 1 discounter has offered to cash rebate checks in its stores, and said that so far, consumers who have taken advantage of the offer immediately spent about 25% of the money in Wal-Marts and 80% at Sam’s Clubs.

Kmart Corp., the nation’s No. 2 discounter, posted a 3.4% rise in same-store sales, and No. 2 Target Corp. said same-store sales rose 4.6%, both slightly above analysts’ estimates.

Before an end-of-month surge, sales generally were poor for most merchants. Analysts are concerned that when short-term incentives, such as the tax rebates and tax-free weeks that some states are implementing, are over, sales will fall back.

The Bank of Tokyo-Mitsubishi Ltd. index, which measures the performance of 80 retailers, was up 3.4% for the month of July, meeting its forecast.

However, without Wal-Mart’s sales, the index would have risen only 2.2%, said Michael P. Niemira, vice president of Bank of Tokyo-Mitsubishi.