Some Good News on Retail Sales Gains in July
Business + Economy

Some Good News on Retail Sales Gains in July


The back-to-school season got a strong start as discounts and high temperatures in July drove shoppers to air-conditioned malls. But merchants worry that momentum won't continue through the remainder of the second-biggest shopping period of the year because of fears of a double dip recession.

Despite a flow of bad economic news that shook consumer confidence, a number of retailers reported July revenue on Thursday that beat Wall Street estimates, including discounter Target, department store Macy's, and luxury chain Saks. The International Council of Shopping Centers' preliminary tally of retailers' revenue at stores open at least a year — a key indicator of a merchant's health — was up 4.6 percent, a slower pace than June's 6.9 percent gain but in line with forecasts.

While the numbers offer encouraging signs for the start to the back-to-school shopping period, which runs roughly between mid-July through September, there are concerns that shoppers will stick to the habits of the Great Recession by focusing on necessities and waiting for sales. That could be a big problem for retailers, which are raising prices in order to offset with rising fuel, labor and other production costs.

"Early going, July looks like it's shaping up to be a solid month despite all the economic headwinds," said Ken Perkins, president of RetailMetrics LLC., a research firm. "But the concern is whether shoppers will buy back-to-school items at full price."

The back-to-school season is important for retailers because it accounts for 16.1 percent of annual retailers' revenues, according to the International Council of Shopping Centers. It's also an opportunity for retailers to gain insight into consumers' shopping habits heading into the biggest shopping season of the year, which starts on the day after Thanksgiving.

Retailers will get a better sense of how shoppers are spending during the back-to-school shopping season in August. But so far, analysts and retail trade groups are sticking to their forecasts for the season, ranging from unchanged to 3 percent compared with a year ago. The National Retail Federation expects families to spend $603.63 on back-to-school items, from clothing to supplies, down slightly from last year's $606.40.

"Overall, July sales reports were decent, but the worry is when you look further out over the next three to six months," said Michael P. Niemira, chief economist at the ICSC. "The growing economic uncertainty may take its toll on future spending."

The concern among retailers and analysts is that while the recession officially ended in June 2009, many shoppers, particularly in the low-to-middle income bracket, feel like it never ended. For many, wage gains haven't kept pace with higher household costs for food and gas, which is $1 more per gallon than a year ago. Home values remain depressed, and companies are not hiring. Adding to that, this fall, shoppers will face higher price tags as retailers try to offset higher labor costs in China and prices of raw materials.

As consumers deal with economic concerns surveys from the National Retail Federation, Deloitte L.L.P. and other groups show that customers plan to buy only what the family needs, focus on fat discounts and reuse last year's items. Denise Edwards, 32, a customer service representative at a cable company, said she won't be shopping for her daughter, who is in pre-kindergarten, until September when she expects more sales.

"I'm saving up my money more because you never know what happens," she said.

Retailers that cater to higher-income shoppers have fared the best in the difficult economy. The biggest standouts have been luxury retailers led by Saks Inc., which had a 15.6 percent increase for the month. That was much higher than the 8.5 percent forecast

Wholesale club operator Costco Wholesale Corp. also managed to attract higher income shoppers and others who like the treasure hunt experience in its stores. The company, which is based in Issaquah, Wash., said revenue from stores open at least a year climbed 10 percent in July, compared with the 8.6 percent analysts surveyed by Thomson Reuters had predicted.

Meanwhile, those catering to the low- and middle-income shoppers have been hurt the most by the economic downturn. Still, many of those retailers posted sales gains during the month, though analysts say some have benefited from a boost in spending by their wealthier shoppers. Furthermore, the biggest sellers have been basic merchandise.

Target, which has been beefing up its grocery business, said revenue at stores opened at least a year rose 4.1 percent in July as shoppers picked up more groceries and health and beauty products. Target said consumers spent more per transaction and back-to-school revenue is off to "a solid start."

Many department stores like J.C. Penney and Macy's also had respectable results, as they drew shoppers in with exclusive merchandise and sales on select items. But they have also tweaked their strategies to resonate with frugal shoppers. Penney, for instance, which delayed its back-to-school ad campaign until July 24, is showcasing how shoppers can layer on fashions as a way to stretch their budgets, by selling shirts with belts, for instance, as one piece.