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Published: Thursday, 8/6/2009

Sluggish July sales show tight-fisted consumers

ASSOCIATED PRESS

NEW YORK Shoppers worried about job security and finding fewer options among the sales bins remained tight-fisted in July, resulting in sluggish sales for many merchants and raising concern about the back-to-school shopping season s health.

As merchants reported their sales figures Thursday, mall-based chains continue to be hit hardest as consumers focus on necessities. Among the disappointments were Macy s Inc. and teen retailers Abercrombie & Fitch Co. and Wet Seal Inc.

Among the few bright spots was discounter TJX Cos., operator of the T.J. Maxx and Marshalls chains. which reported a sales gain that exceeded Wall Street estimates.

The consumer is stressed and depressed, said Ken Perkins, president of retail consulting firm Retail Metrics. Back-to-school shopping season is going to be very late. He added that jobs are everything right now, and if the pace of job losses continues to slow, consumers will start to feel better.

A number of special factors also depressed July s sales results. Lean inventories left fewer clearance options for bargain hunters, as stores wanted to protect themselves from getting stuck with piles of leftovers. The shift of the sales-tax holidays from July to August in most of the 14 states that have them because of a late Labor Day weekend also stole momentum from July.

Frank Badillo, senior economist at consulting group TNS Retail Forward, and other analysts have also noted that the uptick in car buying spurred by the government s cash for clunkers program might siphon sales from other categories like clothing and home furnishings in coming months. That could hurt back-to-school shopping as consumers shift available cash to car payments.

The projected same-store sales decline in July would mark the 11th consecutive monthly drop when excluding Wal-Mart results which had buoyed the industry in the spring before it stopped reporting monthly numbers. Same-store sales are sales at stores open at least a year and are considered a key indicator of a retailer s health.

Merchants are seeing indications that sales decreases are easing. However, business remains weak even amid signs of economic stabilization.

A worrisome sign for merchants and the broader economy of which consumer spending makes up 70 percent is a 1.2 percent decline in consumer spending and a 5.2 percent increase in the savings rate in the second quarter.

That s been driven by worries about a weak job market that have hammered consumers confidence. When the Labor Department releases its monthly jobs report Friday, economists expect it to show unemployment ticked up to 9.6 percent in July, close to its post-World War II high.

A report on unemployment claims released Thursday offered some evidence that layoffs are easing. The Labor Department said that initial claims for jobless benefits dropped to a seasonally adjusted 550,000 for the week ending Aug. 1, down from an upwardly revised figure of 588,000 in the previous week. That s lower than analysts projections of 580,000, according to a survey by Thomson Reuters.

Overall, we are doing better than we had, but we were doing awfully bad, said Bart van Ark, chief economist at The Conference Board, a private research group. The consumer is still very cautious.

Even among the low-price operators, shoppers still remain frugal when buying nonessentials, though there may be signs of easing.

As club operator Costco Wholesale Inc. reported Thursday that its same-store sales dropped 7 percent in July, pressured by lower gas prices and the stronger dollar, the retailer said in a recorded message that some of its strongest categories were food, including deli, candy and frozen food.

It reported weakness in non-food, discretionary categories but did note a slight improvement in some areas such as office, sporting goods, small appliances and men s and women s apparel.

Target Corp., which has been stumbling because of its reliance on nonessentials like trendy jeans, posted a 6.5 percent drop, worse than the 5.8 percent decline analysts had expected.

TJX s 4 percent gain beat Wall Street s expectations for a 3.1 percent increase. It also raised its second-quarter profit outlook.

Among department stores, Macy s reported a 10.7 percent drop in same-store sales, worse than the 9.1 percent drop that was expected. J.C. Penney s 12.3 percent same-store sales decrease was a bit steeper than the 11.4 percent decline that analysts had expected. But Penney raised its earnings outlook.

Gap Inc., which operates stores under its namesake, Banana Republic and Old Navy, posted an 8 percent decline, slightly less than the 8.5 percent drop analysts expected.

Among teen retailers, Abercrombie & Fitch posted a 28 percent same-store sales decline, worse than the 26.9 percent drop that analysts expected. Wet Seal reported a 12.1 percent drop, worse than the 10 percent decline that analysts expected.



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