Retailers brace for holiday season after weak September
American consumers went into hiding in September, leaving retailers with dismal sales and an uncertain future well beyond the holiday season as the fallout from the financial meltdown pushes spending even lower.
As retailers reported their monthly sales figures Wednesday, even discounters weren’t immune to shoppers’ mounting worries about their financial security.
“Discretionary spending has come to a trickle,” said Ken Perkins, president of research company Retail Metrics Inc. “Consumers are the most worried I have seen since at least the 1991 recession. There are so many factors laying on their psyche.”
Wal-Mart Stores Inc., the world’s largest retailer, said sales of discretionary items were weak as it posted solid results that were nevertheless a bit below expectations. Target Corp. fared far worse, reporting a bigger-than-expected drop. It said it was cutting its profit outlook because it expected problems with its credit card business to last through the year as customers have trouble making payments.
Luxury stores such as Neiman Marcus Inc. and Saks Inc. suffered sharp drops as well-heeled shoppers held off on buying $600 stiletto-heeled shoes and other luxuries. Many mall-based apparel stores and department stores including J.C. Penney Co. and American Eagle Outfitters Inc. find themselves mired in a deep sales slump.
With no clear spending recovery in sight, retailers are navigating in the dark about how much to cut their spring orders and store expansions to address the dramatic changes in consumer behavior that are expected to persist at least into next year.
“We rarely eat out, and even groceries have become a big-ticket item,” said Cincinnati resident Victoria Gentry, 41, a single mother of a 15-year-old daughter, who now worries about her job at a bank’s merchant-service division. “No more payday pizzas now.”
Before the financial meltdown began last month, customers had already been switching to lower-price brands and stores, cutting back on essentials and making other changes such as mending their clothes instead of buying new ones.
“Weakness in consumer spending is a significant drag on overall economic activity,” said Scott Hoyt, senior director of consumer economics at Economy.com, who now predicts declines in consumer spending, adjusted for inflation, through the first quarter of 2009. “We are on track for something longer and deeper than either of the previous recessions.”
Desperation has set in as the crucial holiday season approaches. From discounters to luxury stores, merchants have begun cutting holiday orders in recent days, even as goods start to flow into stores, said Arnold Cohen, co-founder of Mahoney Cohen & Co., an accounting firm for the apparel industry. A slew of companies including J.C. Penney and Saks cut their third-quarter outlooks Wednesday as they stepped up discounting to pull in shoppers. And many are delaying spring orders amid so much uncertainty, Cohen said.
Thomson Reuters estimates that its sales tally for September will be up only 1%, well below the 1.9% average pace from January through August. The final tally, which will be released today, will reflect results from other merchants such as Gap Inc. and TJX Cos.
Analysts and store executives say spending could deteriorate even more as the problems on Wall Street filter through the economy, with layoffs expected to rise and the credit markets remaining frozen. That means consumers are having a hard time getting loans and credit lines, and that’s adding to more stress for shoppers, who were already contending with high gas and food prices and a slumping home market.
Wal-Mart offered a tepid sales outlook as it reported a 2.4% gain at stores open at least a year, just missing expectations. The company said it was hurt by having to temporarily close 341 stores because of hurricanes Ike, Gustav and Hanna. Wal-Mart said it expected so-called same-store sales at its U.S. locations to be up 1% to 2% for October.
The company said that September same-store sales were strong in its grocery aisles as well as for health and wellness products, and that customers continued to look for basics.
Plenty of others didn’t fare as well. Target, which has struggled because of its emphasis on nonessentials such as fashions and home furnishings, reported a 3% drop in same-store sales, worse than expected. It also cut its third-quarter outlook as mounting defaults on its store credit cards led to higher write-offs.
Luxury stores saw their sales drop precipitously. Neiman Marcus, which suffered a 12.9% decline, expects “customer demand will remain weak for an extended period of time,” Chairman and Chief Executive Burt Tansky said.
Costco Wholesale Corp. offered one piece of good news. The warehouse club operator said its fourth-quarter profit rose 7% as consumers sought bargains in the tough economy.
The Issaquah, Wash.-based company said net income for the period ended Aug. 31 rose to $397.8 million, or 90 cents a share, from $372.4 million, or 83 cents, a year earlier. Revenue grew 13% to $23.1 billion.
