Retail Sales Expected to Show Growth in September

Late back-to-school shopping may have saved September for retailers, who are still faced with bargain-hunting shoppers, heading into the all-important holiday sales period.

Comparable sales (for stores open at least a year) are expected to show a mild uptick when major retailers report September numbers Thursday, with most forecasts calling for increases in the 2% to 3% range. Since September is the end of the retailers' third quarter and historically the strongest sales month of the period, analysts expect several retailers will update their guidance for third-quarter earnings reports coming next month.

Several analysts tightened up their forecasts as September closed with some weaker-than-expected sales due to bad weather. Michael Niemira, chief economist of the International Council of Shopping Centers, moved his forecast from 3% growth to between 2.5% and 3% after retailers reported soft sales during the last week of September. Thompson Reuters revised its growth forecast from 2.2% to 2.1%.

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Most industry observers have noted that September 2009 was the month when sales began to show growth again, after the anniversary of the recession's onslaught. So any sales trends from now on will begin to reflect more accurately the shoppers' actual behavior, free of the effects of easy year-over-year comparisons.

Shoppers are still behaving like thrifty consumers, however. Sales growth was mild in September, as it was in August and for most of the summer, with some sectors picking up strength and other slowing down, said Mike Berry, Director of Industry Research for MasterCard Advisors SpendingPulse

"One of the continuing stories we've seen is people are really pushing for the now . . . they're buying things when they really need them," Berry said. This tight budgeting has contributed to some of the "schizophrenic behavior" in retail during recent months, where one sector will do well one month and then go down while another rises the next month, he said.

Shoppers Still Holding Out for Discounts

The SpendingPulse numbers, which tally sales by credit card and other payment types, found men's and women's apparel sales were down during the month, but the apparel category as a whole rose 3.8%, thanks to strong sales of children's and teen clothes. Shopping for back-to-school clothes keeps moving later in the season, giving September sales a boost, noted Berry.

SpendingPulse found electronics sales went up in September by 4.3%, but most of the growth was in transactions between $500 and $1,000 and under $25, which suggests back-to-school purchases of laptops and USB drives. Meanwhile, sales of big-ticket items were slow, said Berry.

"That again points to a reluctant consumer . . . keeping their powder dry, as it were, and being very cautious," he said.

Brian Sozzi, retail analyst at Wall Street Strategies, noted seeing much unsold September inventory still on the sales floor during store visits at the end of the month. In a note to investors, he concluded shoppers are not paying full price and prices will continue to be under pressure: "Consumers are balking at buying discretionary items that do not offer considerable value (and value extends beyond a low price)," he wrote in a note to investors.

Unemployment: "Number One Threat"

Thompson Reuters noted in its analysis that personal income rose 0.5% in August, which hints that shoppers have money to spend, but "the number one threat to spending remains the unemployment rate," which is expected to rise to 9.7% in September from 9.6% in August.

So investors will be looking closely at the statements from retailers as they report sales, looking for signs that the holiday season will continue to show growth. The ICSC is projecting holiday sales will rise 3% to 3.5% over last year's, not quite up to pre-recession levels, but an improvement over the last two holidays.

"The key story is that the retail recovery continues," said Niemira, in his report, "and that bodes well for the upcoming holiday shopping season."