Stores See Shoppers in Retreat (NYTimes, 11/09/07)

November 9, 2007
Stores See Shoppers in Retreat
By MICHAEL BARBARO
Consumers have rendered a verdict on the coming holiday season: grim.
From discounters like Wal-Mart to luxury emporiums like Nordstrom, the nation’s biggest chains reported the weakest October in 12 years yesterday.
The stores cited two main forces for the troubles: deepening economic jitters and unseasonably warm weather across the country, which left few consumers in the mood to buy.
The performance has set the stage for deep discounts in November and December as stores scramble to clear out unsold racks of clothing and electronics.
Sales at stores open at least a year, a crucial yardstick in retailing, rose just 1.6 percent last month, the slowest growth since October 1995, according to the International Council of Shopping Centers. The poor results — on the heels of a dismal September — have made this one of the worst fall shopping seasons in decades.
“Retailers are running from this fall like it was the plague,” said John D. Morris, a senior retail analyst at Wachovia Securities.
Wal-Mart Stores, the nation’s largest retailer and a bellwether for the industry, said sales rose a meager 0.7 percent last month, even after the company lowered prices on toys and electronics to drum up business.
Anticipating a consumer spending slowdown, the company has now introduced steep doorbuster discounts — like a $400 laptop — every weekend until Thanksgiving.
Even so, Wal-Mart predicted sales growth could be flat for November.
Midprice department stores did not fare much better last month. Sales fell 1.8 percent at J. C. Penney and 3.8 percent at Kohl’s, two chains that have produced strong performances all year.
In a sign of things to come, both Kohl’s and Penney’s held storewide sales last weekend, with discounts of up to 50 percent.
Even higher-end stores struggled in October. Sales fell 1.5 percent at Macy’s and 2.4 percent at Nordstrom and 7 percent at Dillard’s.
“There is big-time trading down going on,” said Bill Dreher of Deutsche Bank Securities, referring to the phenomenon of consumers’ turning to lower-priced stores because of financial insecurity.
“Nordstrom customers are trading down to Macy’s, and the Macy’s customer is trading down to Target,” he said.
That may account for strong sales at stores known for cheap chic — fashionable clothing and home décor at steep discounts. For example, sales rose 4.1 percent at Target and 3 percent at TJX, the parent company of TJMaxx and Marshall’s.
Luxury chains remained largely immune to the slowdown, with sales at Saks rising 10.6 percent.
The warm weather throughout October appears to have tamped down demand for clothing at the mall. Sales fell 3 percent at American Eagle Outfitters, 6 percent at Limited, 8 percent at Gap and 10.6 percent at Chico’s FAS, the adult women’s clothing chain.
Mr. Morris, who covers mall-based clothing chains, said several had begun cutting back on orders for the holidays, lest they become stuck with racks of unsold sweaters and coats.
The chains said that as the weather grew cooler, business was likely to improve, perhaps sharply this month. But an industry trade group, the National Retail Federation, is still predicting holiday season sales will rise 4 percent, the slowest in five years.
With oil prices soaring, the housing market slumping and the stock market in flux, there is little optimism that this will be a stellar season.
“Our customers are clearly facing headwinds that are impacting both sentiment and discretionary spending levels,” said the chief executive of J. C. Penney, Myron E. Ullman III.
And he does not expect the conditions to improve anytime soon. “We expect the challenging retail environment to continue for the foreseeable future,” Mr. Ullman said.