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Retail shoppers hold tight to their dollars

Just when retailers didn't think business could get worse, October's financial meltdown put even more shoppers on the sidelines, too scared to spend.

Sales slumped deep enough last month that the most commonly cited barometer of chain store sales hit a 39-year low. The index would have plummeted significantly further had it not been for a 2.4 percent sales gain at discount giant Wal-Mart Stores Inc.

"The retail environment in October was simply awful," said Michael Niemira, chief economist for the International Council of Shopping Centers, who compiles the same-store sales index with Goldman Sachs. The decline followed dismal September numbers and prompted many analysts to trim forecasts for what promises to be a threadbare holiday season for merchants as well as shoppers.

The spending chill cut across all categories, from luxury goods to normally recession-resistant wholesale clubs.

"October was very disappointing," said Gregg Steinhafel, chief executive officer of Target Corp. after reporting a 4.8 percent decline, twice as bad as analysts 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."

With consumer spending accounting for two-thirds of gross domestic product, retailers will use numbers to lobby for another economic stimulus payment to minimize recession.

Indeed, many chains' October sales were in free fall: Abercrombie & Fitch, down 20 percent; Macy's, down 6.8 percent; Kohl's, down 9 percent; Nordstrom, down 16 percent; JCPenney down 13 percent; Nieman Marcus, down 27.9 percent; and Saks Fifth Avenue, down 16.6 percent. Even Costco — shored up by staples and food — dropped 1 percent.

The misery already spread to some popular apparel chains' long-term decisionmaking. Ann Taylor Corp., which saw October sales drop 19 percent, will cut new store growth and report a break-even quarter. Troubled Talbots Inc. will try to sell the J.Jill chain. Saks Inc. will close its 78-store Club Libby Lu kids clothing chain by May.

Dark clouds are gathering over the holidays even as many consumers drew comfort from the election results. They still don't have more money to spend, joblessness is at a 25-year high and lenders are tightening terms on record-high credit card balances. Savings have been slashed as the U.S. markets tumble, and home equity is falling, too.

An ICSC survey found 37 percent of consumers plan to spend less on gift giving, the most since the question was first asked in 2004. Only 15 percent plan to spend more. And 46 percent are trying to pulling back on their own personal indulgences.

A similar survey compiled by card issuer Discover Financial Services, which Thursday reported its consumer spending monitor at a record low, found two-thirds of consumers trying to spend less on the holidays.

"The economic and financial news has caught up with consumer spending behaviors," said Margo Georgiadis, Discover executive vice president of marketing. "Nearly 88 percent of consumers are somewhat or very concerned about the financial market crisis and 90 percent of them are spending less because of it."

The weakest spending in October was indulgences — apparel, jewelry, accessories and home decor — as people spent more for staples thanks to higher food and commodities prices.

The spending trend hit TV shopping channels, too.

St. Petersburg-based HSN reported a 1 percent sales decline in the quarter ended Sept. 30 and earnings depressed by price cutting and a rising rate of bad debt from customers. "It's a challenging economy that interrupted our sales gain momentum," said Mindy Grossman, chief executive officer.

Sales at the TV shopping channel rose a respectable 4 percent but were pulled down by a 12 percent decrease at the company's eight catalog-online brands.

HSN outperformed its rivals. Sales at rival QVC were down 2.7 percent in the third quarter. The Jewelry Network laid off 18 workers and shrank its rented headquarters in Nashville. Value Vision/ShopNBC is weighing whether to put itself up for sale after a 26 percent sales drop in the second quarter.

Wal-Mart, meanwhile, which beat analysts' October sales forecasts, continues to do well.

"This is Wal-Mart time," said Lee Scott, chief executive, in concluding a two-day analysts briefing last week. "This is the kind of environment Sam Walton built this company for."

Mark Albright can be reached at [email protected] or (727) 893-8252.

Retail shoppers hold tight to their dollars 11/06/08 [Last modified: Monday, November 10, 2008 12:22pm]
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