Retail sales fall in August, but drops are easing | 6abc.com | 6abc Philadelphia

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By 6abc

Thursday, September 3, 2009

NEW YORK (AP) - September 3, 2009 Despite the weakness many reported, retailers overall did better in August than analysts expected. Some lower-priced chains, such as TXJ Cos.' TJMaxx and Gap's Old Navy, even saw sales rise compared with a year earlier, though upscale stores' sales slipped.

"It does seem like the consumer is willing to spend if given a great deal," said Carl Steidtmann, an economist at Deloitte Research. "That reflects a consumer that is slowly coming out of their bunker."

There have been encouraging reports from the housing and manufacturing sectors that the economy is stabilizing, but any recovery will have to include an uptick in consumer spending because it accounts for about 70 percent of economic activity.

"It's still weak in the broad trend, but it is considerably stronger than it has been in some time," said Michael Niemira, International Council of Shopping Centers' chief economist.

A monthly compilation of 32 retailers' sales by The ICSC and Goldman Sachs showed sales in established stores fell 2 percent this August compared with August 2008. That was better than the 3.5 percent to 4 percent drop analysts forecast. About half of retailers reporting did worse than analysts polled by Thomson Reuters expected while half did better.

ShopperTrak RCT, a Chicago-based research company that tracks customer traffic at more than 45,000 stores, said foot traffic figures for back-to-school are in line with its forecast of a 10 percent drop from last year.

The better-than-expected sales results eased some analysts' concern that the holiday season will be as bad as last year. "The core issue here is pent-up demand; that's what we'll be talking about this holiday season," Niemira said. "I think August is the start of this transition to better times for the industry."

The retail industry's monthly report comes more than a week before the U.S. Department of Commerce's monthly retail tally, due Sept. 15, which includes a much broader range of businesses such as auto, gasoline and building materials retailers. With Wal-Mart no longer participating in the industry roundup, it shows more about discretionary spending than the economy overall. The industry tally is sometimes seen as a better gauge of retailers' viability,

however, because it compares established stores from one year to the next, while the government figure is for total sales.

Discounters performed best as consumers remained focused on bargains. Target Corp.'s sales at established stores dropped 2.9 percent, better than the 5.1 percent drop analysts expected. The 5 percent increase at TJX Cos., which operates Marshall's as well as TJMaxx, also beat expectations.

Upscale retailer Saks Inc. reported a 19.6 percent drop, even larger than analysts expected. And department stores overall remained weak. Macy's Inc. reported an 8.1 percent decline in sales at established stores.

Gap Inc. reported lower sales but beat expectations, boosted by its low-priced Old Navy chain.

The teen sector was weak. The Buckle Inc., which has been doing better than others in the sector, reported higher sales than a year ago but missed analyst expectations. And Abercrombie & Fitch Co., which has kept prices higher than most competitors, reported a 29 percent drop, bigger than expected.

Aeropostale Inc., which has outperformed competitors by focusing on low prices, reported higher sales than analysts predicted.

Heading into fall, stores have ordered less inventory to decrease the likelihood of markdowns. But some now worry that strategy may hurt retailers if consumer demand increases.

Arnold Aronson, managing director of retail strategies at consulting firm Kurt Salmon Associates, said clothing stores cut their orders 10 percent to 20 percent for this fall, and he expects the trimming to continue at least through spring.

"Stores are going to be very careful about ordering," he said. He said their ordering will even be "out of whack" with consumer demand, but stores would rather lose a little business than be stuck with piles of merchandise they must discount.

That's what happened last holiday season, when retailers ended up slashing prices 70 percent or more.

Ken Perkins, president of retail consulting firm Retail Metrics, sees no such "disaster" coming this year.

"It's not going to be 'Nightmare on Elm Street 2' for these guys," he said.

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AP Retail Writer Anne D'Innocenzio in New York contributed to this report.