Retailers report sluggish sales in October
Consumers worry about housing market, gas prices
Friday, November 9, 2007NEW YORK (AP) - At this point, there may not be much retailers can do to salvage the holiday season. And it hasn't even officially started.
They've pulled out a slew of tricks already, from deep discounts to early shopping hours, to little avail. October showed the slowest monthly sales growth in 12 years, retailers reported Thursday.
Higher gas prices, rising heating fuel costs, tightening credit, lower home values and dangerous toys have sapped the confidence of American consumers and it all may add up to the slowest holiday shopping season in five years.
"We've been trying to tighten up, have some discipline and get it under control," said Janet Grau, who was shopping for items at a Linens 'n Things in Milwaukee this week.
It was weak across many sectors in October, from mall-based apparel stores like Limited Brands Inc. to department stores like J.C. Penney Co. Even the world's largest retailer, Wal-Mart Stores Inc., posted sales below expectations despite heavy discounting.
The few standouts were warehouse club operators such as Costco Wholesale Corp. and BJ's Wholesale Club Inc. as consumers sought out lower prices than even discounters offered.
"This is an extremely turbulent time," said Janet Hoffman, managing partner of the North American retail division of the consulting firm Accenture. "We are going to see a lot of price reductions."
The International Council of Shopping Centers-UBS tally at stores open at least a year, considered a key indicator of a retailer's health, rose 1.6 percent in October. That was below the original 2.5 percent forecast and marked the slowest October pace since 1995.
It was also under the 2.2 percent average growth rate for retailers' fiscal year, which begins in February.
Mild weather accounted for some of the slower growth. People tend to hold off buying winter clothing until they must. Michael P. Niemira, chief economist at ICSC, estimated that warmer than average fall temperatures depressed sales results by about 0.75 percentage point.
But a balmy fall is only a small part of retailers' woes, which seem to be mounting with Christmas only seven weeks away.
Throughout the year, shoppers have wrestled with higher gas and food bills and depreciating home values. For a long time, Americans had been using the rising values of their houses as a kind of piggy-bank, borrowing from their equity on a bet that home prices would continue to climb.
But as the crisis among mortgage holders with less than stellar credit spread and foreclosures rose, home values fell and lending standards tightened.
The Federal Reserve has tried to rescue the credit markets and prop up the economy with two interest rates cuts in the past two months. But although the moves make borrowing money cheaper, economists say they probably came too late to help boost holiday spending.
"Our customers are clearly facing headwinds 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," said Myron E. Ullman, III, chairman and CEO of Penney.
Amid such challenges, several big stores including Wal-Mart and Toys "R" Us Inc. offered big discounts starting last weekend. The price cuts were similar to those typically offered on the day after Thanksgiving. Toys "R" Us is promoting a similar sale this weekend.
Wal-Mart posted a 0.4 percent gain in same-store sales, below the 1.1 percent gain expected by analysts polled by Thomson Financial. The results excluded fuel sales. Wal-Mart said sales of Halloween merchandise were solid across all departments, but seasonal categories related to cold weather including apparel and home furnishings were weak.
Wal-Mart forecast that same-store sales growth will be no more than 2 percent in November.
The tale was similar at many other large retailers.
Limited had a 6 percent drop in same-store sales, worse than the 1.6 percent drop Wall Street expected.
Gap Inc.'s 8 percent decline in same-store sales was lower than forecast.
And Macy's Inc. posted a 1.5 percent decline in same-store sales, weaker than the 0.6 percent decline projected.
Macy's had weak results even though it tried to spur sales with star-packed ads featuring celebrities like Donald Trump, and a return to more promotions at some locations where the Macy's name replaced local department store favorites.
Marshal Cohen, chief industry expert at NPD Group Inc., said that even though stores are pushing discounts early, they are not going to get shoppers to buy more this holiday season. The reason: there's no hot product to entice them to buy, even if they wanted to spend money.
"All they are doing is moving the purchase time around," said Cohen. "We have got this lackluster passion for product."
-- AP Business Writer Emily Fredrix in Milwaukee contributed to this report.