Retailers post weak October gains
In more dreary news for companies banking on a happy holiday season, retailers recorded their flimsiest October sales gains in 12 years as most big chains failed to meet Wall Street’s expectations.
Sales at stores open a year or more, known as same-store sales, inched up 1.6% from October 2006 to $58.3 billion, according to a tally of 44 chains released Thursday by the International Council of Shopping Centers. That contrasts with a 3% gain the year before.
It was the second-weakest sales increase in 38 months and an inauspicious prelude to the most important shopping period of the year. Retailers typically generate 20% to 40% of their annual revenue in November and December.
“It certainly doesn’t bode well for the holiday shopping season,” said Ken Perkins, an analyst at Retail Metrics Inc.
Department stores, specialty shops and teen apparel sellers struggled in October while two of the nation’s highest-end chains, Saks Inc. and Neiman Marcus Group, saw sales boom, advancing 10.6% and 8.5%, respectively.
Nordstrom Inc. logged a 2.4% drop, its first decline since April 2003, when same-store sales fell 0.3%. Analysts had predicted a 1% increase. In Southern California, one of Nordstrom’s strongest markets, the wildfires singed sales.
Beyond that, retailers blamed one of the warmest Octobers on record for pinching apparel purchases, among other factors.
“Our customers are clearly facing head winds that are impacting both sentiment and discretionary spending levels, including weak housing market conditions, high energy prices and uncertainty in the mortgage and credit markets,” J.C. Penney Co. Chief Executive Myron E. Ullman III said in a statement. The company posted a 1.8% same-store-sales drop.
The housing market is of particular concern to Southern Californians, according to a holiday survey that consulting firm Deloitte released this week. Southlanders were almost twice as concerned about the fall in home values as was the rest of the nation, the report said.
Nationwide, consumers’ caution was evident in a poll that America’s Research Group conducted in the first four days of this month. It found that 32% of Americans felt “worse off financially” this year, compared with 19% last year.
“This is the softest Christmas retail season that we’ve experienced in many years,” Britt Beemer, the marketing firm’s chairman, said in a statement. Consumers will be looking for “bigger bargains than ever.”
They may well find them. Retail experts have been predicting deeper markdowns. Wal-Mart Stores Inc. tried last month to get shoppers in a spending mood, announcing it would immediately begin trimming prices on toys, with more cuts to follow each week. But the world’s largest retailer logged only a 0.4% increase in same-store sales in October, less than the 1.1% that analysts were expecting.
The nation’s largest specialty apparel seller also continued to struggle. Gap Inc., which operates more than 3,100 Gap, Old Navy and Banana Republic stores, posted an 8% drop, more than the 4.5% decline that analysts were expecting, as sales fell in all divisions.
Zumiez Inc., a favorite of skateboarders, surfers and snowboarders, took a hit Thursday, one day after announcing that its per-share earnings for the third quarter and the year would be less than Wall Street was expecting. Its stock plunged 27% to $28.74, down $10.71.
“The company is taking a more conservative outlook for the remainder of fiscal 2007 due to the reliance on seasonal merchandise in the fourth quarter,” Zumiez said in a statement.
Some retailers predicted that sales would bounce back this month as temperatures drop and shoppers start buying coats, sweaters and other cold-weather gear. Michael Niemira, chief economist of the shopping center group, said sales were likely to rise 2.5% in November and for the holiday season.
The most telling thing about October sales may be the strength among wholesale clubs, such as Costco Wholesale Corp. and Wal-Mart’s Sam’s Club, Niemira said. Those retailers get a boost from higher gasoline prices, but their performance also reveals “the economic stress out there.” This could portend improved sales for discounters over the holiday season. “There’s a shift toward more value buying,” Niemira said.
At the same time, the biggest spenders seem intent on pushing forward. Neiman Marcus mentioned strong sales of designer handbags, jewelry and shoes in its report. And Nordstrom, despite losing ground in October, reported brisk sales of designer apparel and accessories.
Southlanders plan to do their share to help retailers over the next couple of months, according to the Deloitte survey, spending an average of $1,951 a person. That’s more than the national average of $1,851 but less than in other major metropolitan areas, including New York, Chicago and San Francisco.
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