Shoppers are still frugal, but retail sales are not as bad as expected

"Better than expected" is the new catchphrase for retailers, most of whom posted August sales that were weak but not as bad as many had forecast.

Sales reported Thursday showed that shoppers continue to focus on must-have items such as food and toiletries, while luxury sales are dragging. Shoppers are still bargain hunting, even amid back-to-school sales and state tax holidays designed to send consumers back into the malls.
The International Council of Shopping Centers' tally of August chain stores showed comparable sales down two percent below August 2008. That's the smallest monthly decline since September 2008, when sales were down one percent year over year; it's also an improvement from a five percent year over year decline in July. The figures exclude Walmart Stores Inc. (WMT), which does not report monthly figures.

The August sales figures show a turning point in the retail cycle, says a report by Michael P. Niemira, chief economist and director of research for the ICSC.

Indeed, many observers have pointed out that comparison of sales figures will get better during the rest of the year, because they will be compared to the same period last year, when sales fell off a cliff as the credit crunch hit home.

And many retailers also reported better than expected results for the second quarter last month. Despite earnings being down, many companies beat Wall Street's expectations, thanks to reductions in inventory and cost cutting.

Department stores' comparable sales were down 7.3 percent during the month, according to the ICSC tally. Macy's Inc. (M) comparable sales were down 8.1 percent, Nordstrom Inc. (JWN) was down 7.6 percent and J.C. Penney Co. (JCP) was down 7.9 percent.

One exception was Kohl's Corp. (KSS). It eked out a comparable sales increase of 0.2 percent, helped by its sales growth in markets vacated by the defunct Mervyn's chain in the Southwest, where several states moved their sales tax holidays to August.

Within the department store group, luxury chains were down 12.3 percent. Both Neiman Marcus Group and Saks Inc. (SKS) posted comparable store sales that were 19.6 percent lower than last year. As seen in the recent reports of a possible bankruptcy filing at Barneys New York, luxury retailing has been hit badly in this recession.

At the other end of the retail spectrum, cheap gasoline prices continued to hit sales at warehouse clubs. BJ's Wholesale Club, Inc. (BJ) saw comparable sales drop six percent in August, but sales excluding gas were up 2.2 percent. Rival Costco Wholesale Corp. (COST) reported comparable sales in the U.S. were down two percent but non-gas sales were flat, with food and sundries selling well.

Among discounters, Target Corp. (TGT) comparable store sales were down 2.9 percent.

The specialty clothing stores were a mixed bag. Abercrombie & Fitch (ANF) continued to take a beating, with same-store sales down 29 percent, while across the mall, Aeropostale (ARO), which has made a play as a more affordable alternative, was up nine percent. Limited Brands (LTD) comparable sales were down eight percent, with Victoria's Secret comparable sales down five percent and Bath and Body Works down one percent. Gap Inc. (GPS) total comparable store sales were down, but tellingly, the more expensive Gap and Banana Republic chains were down seven percent and eight percent, respectively, while the lower-priced Old Navy was down only four percent.

A report from retail consultants RetailForward said the August numbers show shoppers are still in penny-pinching mode, but beginning to loosen up. It said its research found 43 percent of shoppers will spend less this holiday season, but also noted that 53 percent of shoppers polled said they planned to spend the same amount in August as they did a year ago -- and that's the first time since February 2008 that percentage has topped 50 percent.

"Shoppers intend to hold the line on back-to-school spending and their early plans for the December holidays are restrained," wrote Frank Badillo, senior economist. "Over time, however, shoppers continue to give encouraging signs that they are slowly easing their iron grip on their spending plans."
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