Retailers Racking Up Sales
Retail sales are booming because of, well, sales.
Just ask Carol Cobb, a 50-year-old Placentia resident who was combing the discount rack at the Sears store in South Coast Plaza this week.
“They almost pay you to take it out of the store,” said Cobb, who picked up a $60 Lands’ End men’s jacket for a mere $10.
Encouraged by hefty bargains -- and armed with tax rebates and cash from mortgage refinancings -- Americans were busy shoppers in August, despite an economy that remains fairly weak.
Retailers’ same-store sales rose 5.1% during the month, the strongest year-over-year increase since June 2002, according to a Bank of Tokyo-Mitsubishi survey released Thursday. A separate survey by Redbook Research put the increase at 4.7% for August, a time when many families stock up on back-to-school merchandise.
Three California retailers, in separate reports Thursday, logged double-digit gains in same-store sales, which are a key measure of a merchant’s financial health. Guess Inc. in Los Angeles posted a 14.5% increase, City of Industry-based Hot Topic Inc.’s same-store sales rose 11.8% and Pacific Sunwear of California Inc. in Anaheim saw a 15.6% jump.
Gap Inc., which had been posting same-store sales increases since October after a two-year slump, advanced a smaller-than-expected 4%. Investors reacted by knocking 13% off the price of the San Francisco-based company’s stock. It closed at $18.18, down $2.82, in New York Stock Exchange trading.
Some companies, meanwhile, saw August sales decline. Foothill Ranch-based Wet Seal Inc., which has been struggling to connect to its core teen customers, reported a 10.7% drop in same-store sales. Same-store sales at Abercrombie & Fitch tumbled 11%. And American Eagle Outfitters was hit with a 10.3% falloff.
Nevertheless, the retail sector’s overall results raised hopes that the coming holiday shopping season may be cheerier than previously expected for retailers -- and that consumer spending may bolster the economic recovery.
Sung Won Sohn, chief economist for Wells Fargo & Co., said federal tax cuts and cash from home refinancings have put $722 billion into Americans’ piggy banks over the last two years. “Consumers have money to burn and they’re spending it,” he said. “Unless we have another terrorist attack or something like that, I think the holiday shopping season should be pretty healthy.”
Still, Sohn and others hoisted a few caution flags. Some questioned whether the stores’ increased revenue was enough to offset the deep discounts they’re being compelled to offer.
“The problem is, margins are slipping for retailers,” Sohn said. “There are volume gains, but they’re really not making a whole lot of money.”
Others wondered whether the sales gains would be fleeting, given that the tax giveback from Washington was a one-time event and U.S. employers continue to pare their payrolls.
“Consumers are not going to be getting rebate checks for the holiday shopping season,” said Scott Hoyt, a retail expert for Economy.com.
“Wage growth appears to be weakening, so if we don’t start to see some improvement in the job market, there certainly are risks that the strong sales we’re seeing right now are not indicative of what we’ll see for Christmas,” he said.
For now, though, shoppers seem more than willing to spend -- at least as long as there is a deal to be had.
“I always look at the sales rack first,” said Melissa Gemilere, 18, a spa receptionist from Catalina, who was shopping at an Old Navy store at the Metro Pointe shopping center in Costa Mesa this week. “Same with the Internet -- I always go to the clearance.”
In this sort of environment, it’s no surprise that low-price warehouse clubs -- such as Natick, Mass.-based BJ’s Wholesale Club Inc. and Issaquah, Wash.-based Costco Wholesale Corp. -- notched the strongest same-store sales advances last month, rising 8.8% as a group.
Drugstores made the second-strongest showing, followed closely by discounters, led by Bentonville, Ark.-based Wal-Mart Stores Inc. Same-store sales at the nation’s biggest retailer jumped a better-than-expected 6.9%.
Sears Roebuck & Co., based in Hoffman Estates, Ill., broke a two-year same-store sales slump with a 3.9% increase.
Overall, however, department store sales were up a sluggish 1.5%. Specialty apparel stores, which have been producing robust results as a group in recent months, disappointed. They gained just 0.5%, the smallest bump since March.
Looking ahead, analysts said sales growth would continue to be driven by the same primary factor: bargains. It is a dynamic, Sohn said, that may be difficult to reverse.
Shoppers “are not willing to part with their money unless they’re given a significant promotion,” he said. “Promotions have become kind of like antibiotics. The consumers have kind of developed an immunity” -- and demand bigger and bigger doses if there’s going to be any effect.
