Retail sales remain sluggish


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The big worry is that frugal parents will focus on outfitting their children this fall with just necessities like notebooks and jeans. And fear is bubbling up that frugal parents might consider any extra splurges early Christmas gifts.

The persistent pullback despite signs of a stabilizing economy could stall the overall recovery as consumers account for 70 percent of all economic activity.

"The consumer is stressed and depressed," said Ken Perkins, president of retail consulting firm Retail Metrics.

"Back-to-school shopping season is going to be very late." Worries about job security, retirement accounts and home values have made consumers focus on necessities like food and other basics. But stores are also grappling with a newly adopted frugality as consumers -- even those that have jobs and feel secure about their assets -- learn how to save and stick to a budget. That fixation on frugality is likely to linger even after economic worries dissipate.

Michael Dart, a retail strategist and leader of private equity practice for consulting firm Kurt Salmon Associates, believes that based on what he's been hearing from consumers, some of those purchases may even double up as Christmas gifts as shoppers remain tight-fisted. "Shoppers are becoming much more practical," Dart said.

The bargain-hunting played out again in the retailers' reports, with mall-based apparel stores faring the worst. Among the disappointments were Macy's Inc. and teen retailers Abercrombie & Fitch Co. and Wet Seal Inc.

The few bright spots were apparel discounters like Ross Stores Inc., and TJX Cos., operator of the T.J. Maxx and Marshalls chains, both of which reported sales gains -- a rarity right now -- that well exceeded Wall Street estimates.

A number of special factors also depressed July's sales results. Lean inventories left fewer clearance options for bargain hunters, as stores wanted to protect themselves from getting stuck with piles of leftovers. And NPD Group Inc. chief retail industry analyst Marshal Cohen fears that lean back-to-school inventories, particularly at department stores, could stall sales this fall -- if shoppers can't find what they want.

The shift of the sales-tax holidays from July to August in most of the 14 states that have them because of a late Labor Day weekend also stole momentum from July.

Perkins and other analysts have also noted that the uptick in car buying spurred by the government's "cash-for-clunkers" program might siphon sales from other categories like clothing and home furnishings. That could hurt back-to-school shopping as consumers shift available cash to car payments.

A monthly compilation of more than 50 retailers' results by The International Council of Shopping Centers and Goldman Sachs showed overall same-store sales fell 5.0 percent in July compared with the year-ago period. Michael Niemira, ICSC's chief economist, estimates that the tax holiday factor depressed July's results by 0.5 percentage points and likely will boost August's sales figures by the same amount.

Same-store sales are sales at stores open at least a year and are considered a key indicator of a retailer's health.

July's decline marks the 11th consecutive monthly drop when excluding Wal-Mart results -- which had buoyed the industry in the spring before it stopped reporting monthly numbers.

Merchants are seeing indications that sales decreases are easing. However, retail sales remain weak even amid signs of economic stabilization including signs of life in the real estate market. One big factor has been job security. When the Labor Department releases its monthly jobs report Friday, economists expect it to show unemployment ticked up to 9.6 percent in July, close to its post-World War II high.

A report on unemployment claims released Thursday offered some evidence that layoffs are easing. The Labor Department said initial claims for jobless benefits dropped to a seasonally adjusted 550,000 for the week ending Aug. 1, down from an upwardly revised figure of 588,000 in the previous week.

Even among the discounters, shoppers still remain frugal when buying nonessentials, though there may be signs of easing.

Warehouse club operator Costco Wholesale Inc. reported Thursday that its same-store sales dropped 7 percent in July, pressured by lower gas prices and the stronger dollar. The retailer said some of its strongest categories were food, including deli, candy and frozen food.

It reported weakness in non-food, discretionary categories but did note a slight improvement in some areas such as office, sporting goods, small appliances and men's and women's apparel.

Target Corp., which has been stumbling because of its reliance on nonessentials like trendy jeans, posted a worse-than-expected 6.5 percent drop.

Among department stores, Macy's reported a deeper-than-expected 10.7 percent drop in same-store sales. But luxury retailer Nordstrom Inc.'s decline wasn't as steep as anticipated, suggesting that the stock market rally may be boosting affluent shoppers' confidence.

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