U.S retail sales sink in July

Shoppers, worried about job security and finding fewer options among the sales bins, remained tight-fisted in July, resulting in sluggish sales for many U.S. merchants and raising concern about the back-to-school shopping season's health.

As merchants reported their sales figures Thursday, mall-based chains continue to be hit hardest as consumers focus on necessities.

The International Council of Shopping Centers-Goldman Sachs tally of retail sales fell five per cent in July compared with the year-ago period. July's pace was in line with the 5.1 per cent drop in June and worse than the 4.5 per cent decline averaged since February.

Among the disappointments were Macy's Inc. and teen retailers Abercrombie & Fitch Co. and Wet Seal Inc. Among the few bright spots was discounter TJX Cos., operator of the T.J. Maxx and Marshalls chains, which reported a sales gain that exceeded Wall Street estimates.  

"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."

Perkins added that jobs are "everything right now," and if the pace of job losses continues to slow, consumers will start to feel better.

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

'The consumer is stressed and depressed.' —Retail Metrics president Ken Perkins

Frank Badillo, senior economist at consulting group TNS Retail Forward, and other analysts have also noted that the uptick in car buying spurred by the U.S. 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.

Merchants are seeing indications that sales decreases are easing. However, business remains weak even amid signs of economic stabilization.

A worrisome sign for merchants — and the broader economy of which consumer spending makes up 70 per cent — is a 1.2 per cent decline in consumer spending and a 5.2 per cent increase in the savings rate in the second quarter.

That's been driven by worries about a weak job market that have hammered consumers' confidence. When the Labor Department releases its monthly jobs report Friday, economists expect it to show unemployment ticked up to 9.6 per cent in July, close to its post-World War II high.

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

As club operator Costco Wholesale Inc. reported Thursday that its same-store sales dropped seven per cent 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.

Fashion retailers suffer drops

Target Corp., which has been stumbling because of its reliance on nonessentials like trendy jeans, posted a 6.5 per cent drop, worse than the 5.8 per cent decline analysts had expected.

TJX's four per cent gain beat Wall Street's expectations for a 2.3 per cent increase. It also raised its second-quarter profit outlook.

Among department stores, Macy's reported a 10.7 percent drop in same-store sales, worse than the 9.1 per cent drop that was expected. J.C. Penney's 12.3 per cent same-store sales decrease was a bit steeper than the 11.4 per cent decline that analysts had expected.   

Among teen retailers, Abercrombie & Fitch posted a 28 per cent same-store sales decline, worse than the 26.9 per cent drop that analysts expected. Wet Seal reported a 12.1 per cent drop, worse than the 10 per cent decline that analysts expected.