Holiday outlook turns grimmer after dismal October
NEW YORK — Retailers suffered through the weakest October in at least 39 years, despite frenzied price cutting as they desperately try to pull in consumers who are too worried about their finances to shop.
The sales tallies from major retailers on Thursday _ many showing declines of 10 percent or more _ suggests that shoppers will remain skittish through the holiday season, buying presents for children but not much else.
"There was every reason for consumers not to shop," said Walter Loeb, a New York-based retail consultant. "Layoffs are rising, the stock market is tumbling. Consumers are feeling poorer."
One of the few bright spots was Wal-Mart Stores Inc., whose results show how much frugal consumers are focusing on necessities. The world's largest retailer also said it will cut prices on items from toys to laptops over the next seven weeks. Department store J.C.Penney Co. is also offering extended hours and markdowns of up to 60 percent this weekend.
The stunning and rare drop in sales last month, following an already weak September, showed the toll the financial crisis is taking on all shoppers, from teens to the affluent, and analysts expect no recovery until at least the second half of 2009.
Not even receding gas prices _ their rise a cause of angst for shoppers just a few months ago _ are expected to provide much relief for the holidays as consumers fixate on shriveling retirement funds and job security amid widespread layoffs. The number of people continuing to receive jobless benefits reached its highest level in more than 25 years, according to government figures released Thursday.
All of that is fueling more concern about the retail industry, which is expected to report its sixth consecutive quarter of profit declines when it reports third-quarter results this month. A growing number of merchants are facing a do-or-die holiday season, having already seen competitors like Mervyns LLC and Linens 'N Things forced to liquidate.
Loeb now predicts that total retail sales for the November-December period could drop 1 percent, compared with his original growth estimate of 0.5 percent. That would be the worst performance he's seen since at least the 1970s.
He says shoppers may focus on buying presents for children and skimp for most everyone else.
Michael P. Niemira, chief economist at the International Council of Shopping Centers, described October's performance as "awful."
"This reflects the severity of the current financial crisis," he said.
According to the ICSC-Goldman Sachs index, sales fell 0.9 percent, the weakest October performance since at least 1969 when the index began. That compares to a 1 percent gain in September and is well below the 1.8 percent average pace so far this fiscal year, which for retailers begins in February. Niemira said October's decline is the first non-Easter related drop since at least 1986.
Excluding Wal-Mart, the October sales number was down 4.6 percent. The index is based on same-store sales, or sales at stores opened at least a year, which are considered a key indicator of a retailer's health.
As a result, Niemira now expects same-store sales for the combined November and December period to rise 1 percent; his original forecast was for growth of 1 percent to 2 percent.
Wal-Mart posted a 2.4 percent gain in same-store sales, better than the 1.6 gain projected by analysts surveyed by Thomson Reuters. Including fuel sales, they were up 2.5 percent. But Target Corp. _ which has lagged behind Wal-Mart because of its heavier emphasis on nonessentials _ posted a 4.8 percent drop, worse than the 2.8 percent decline expected.
"We expect the recent challenging sales environment to continue into the holiday season and beyond as a result of the economic factors currently affecting consumer spending," Target's President and Chief Executive Gregg Steinhafel said in a statement.
Even Costco Wholesale Corp, hurt by currency effects, reported a 1 percent decline in October, compared with the 3.6 percent gain Wall Street projected.
But most mall-based stores fared even worse, reporting double-digit percentage sales declines. Penney reported a 13 percent drop in same-store sales at its department store business and cut the top end of its profit outlook. Macy's Inc. posted a 6.3 percent drop.
Luxury stores were hit hard as affluent shoppers cut back on designer clothing amid rising layoffs on Wall Street and shrinking bonuses. Nordstrom posted a 15.7 percent drop in same-store sales, while Saks Inc., which operates Saks Fifth Avenue, recorded a 16.6 percent drop. Saks also said it expects a "significant" decrease in profit margins for the third and fourth quarters as it ramps up discounting.
Even teens stayed away from malls. American Eagle Outfitters Inc. announced a 12 percent drop in same-store sales, while Abercrombie & Fitch Co. suffered a 20 percent drop.
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ANNE D'INNOCENZIO | November 6, 2008 05:21 PM EST |
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