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  • Teenagers enter a Juicy Couture clothing store that features a window display with back-to-school fashion, in New York. The Associated Press

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September 3, 2010

Discounts spur surprising retail sales gains

NEW YORK (AP) — This year's back-to-school season isn't as big a bust for retailers as they feared — or as last year's — but it's not great either.

Americans are spending only when the item and price are just right, according to August reports from major chains released Thursday that showed shoppers bought a little more than a year ago.

Analysts expect stores will need to keep discounting to get shoppers to spend this fall and for the holiday season while they grapple with job worries and tight credit.

"It's a glimmer of hope that the numbers are coming in ahead of low expectations," said Ken Perkins, president of research firm RetailMetrics. "But the back-to-school shopping season isn't anything to get excited about. It means that Santa may not be dumping a huge lump of coal, but it sets up a very promotional holiday season."

Retailers that cautiously primed for a comeback five months ago as sales improved have been scaling back their hopes and making some tweaks to their merchandise again, analysts said.

And stores will face more difficult comparisons starting this month because consumer spending had started rising by last September.

But Thursday's reports helped ease fears of another double dip recession, which have been stoked in recent weeks by a barrage of negative economic reports, including slumping home sales.

The International Council of Shopping Centers said Thursday that its index of 31 major retailers rose 3.2 percent for August. That's a tad better than the 3 percent forecast but it barely compensates for a 2.0 percent drop a year ago.

For most of stores releasing comparisons, they cover the four weeks that ended Aug. 28. Back-to-school shopping stretches from late July through mid-September, but recession-scarred consumers have been shopping later, waiting for the best deal.

Among the big winners were Costco Wholesale Corp., Victoria's Secret operator Limited Brands Inc. and Macy's Inc., whose results beat Wall Street forecasts.

Target Corp.'s results were helped by solid sales of food and back-to-school merchandise, but revenue overall at stores open at least a year fell slightly short of expectations. Chains that cater to teenagers had mixed results. Luxury retailers, which have been holding up much better, were mixed as some affluent shoppers are spooked by the wild swings in the stock market; Nordstrom Inc. fared well, but Saks Inc.'s gain was small.

Steve Koenig, director of industry analysis for the Consumer Electronics Association, said spending on overall back-to-school electronics showed "marginal improvement" over last year, which was a low point.

Wal-Mart Stores Inc. no longer reports monthly on its revenue.

Revenue at stores open at least a year is considered a key measure of a retailer's health because it excludes the effects of expansion and stores closing during the year.

Spending on nonessentials such as fashion remains below 2008 and closer to the level of five years ago, according to MasterCard Advisors' SpendingPulse, which tracks transactions in all forms including checks and cash.

August's figures continue a trend that began in April of shoppers holding back; it's expected to continue at least through December.

That frugality — after stores saw a surprise uptick at the holidays and through March — has meant an uneven recovery for retailers at the high end, as well as the low and middle.

Stew Leonard Jr., CEO of New York and Connecticut grocery chain Stew Leonard's, said he's stocking more $10 to $20 wines again, as shoppers pull back from the $30 bottles they bought last spring. The chain is also back to cutting gourmet Reggiano Parmesan cheese into smaller wedges, a practice it started in 2008 to shrink prices.

Clothing stores aggressively promoted jeans and other fashions in July to lure shoppers — with limited success. Tax-free holidays in nearly 20 states also helped, but the unrelenting hot weather dampened shoppers' appetite for fall clothing.

John Gerzema, chief insights officer of Young & Rubicam and author of the book "Spend Shift," said Americans are moving "from mindless to mindful consumption." "They're separating needs from wants," he said, adding, "Now, consumers are in an environment that is continuous turbulence that could be a fact of life for a few years."

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