Higher-priced stores feeling the consumer pinch

The Associated Press
Friday August 10, 2001

NEW YORK — Consumers, worried about layoffs and shrinking stock portfolios, continued their love affair with discounters in July, but the shift toward lower-priced stores left other top merchants with disappointing sales. 

As retailers reported sales figures Thursday, it was clear that value-oriented stores were the primary beneficiaries of a sales surge in recent weeks that some analysts attributed to the first wave of tax rebate spending and aggressive pricing. 

Kmart Corp. and J.C. Penney Co. Inc., both of which reported sales that beat Wall Street expectations, are showing signs of a solid turnaround. 

However, department stores, particularly Saks Inc. and Neiman Marcus, and apparel chains including Gap Inc. and The Limited Inc. suffered again, languishing amid piles of discounted summer apparel. 

Retailers catering to teens also had mixed results, leaving analysts uncertain about the back-to-school season. Teen retailer Abercrombie & Fitch, which reported a 14 percent drop in sales from stores open at least a year, saw its stock plummet 17 percent, or $6.14, to $30 on the New York Stock Exchange, after it issued a cautious outlook for the remainder of the year. 

“Unquestionably, the retail environment remains very difficult,” said Mike Jeffries, chairman and chief executive officer of Abercrombie & Fitch. 

Another economic report Thursday fed worries about a softening labor market that could continue to hurt consumer spending. After a three-week decline, new claims for state unemployment insurance rose last week, suggesting employers are letting more workers go. 

“The employment picture is pegged to the economy. Consequently, there will still be caution,” said Michael P. Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd. “The overall tone is that the climate is difficult and challenging.” But, he added “there are signs of hope,” and pointed to the sales improvement in the latter part of July. 

“Given the timing of the tax rebates and the sales pickup, one assumes that there is a direct relationship,” Niemira said. “The question is, how much will retailers be affected?” 

Wal-Mart Stores Inc. has offered to cash rebate checks in its stores, and said that so far, consumers immediately spent about 25 percent of the money in Wal-Marts and 80 percent at Sam’s Clubs, depending on where they cashed their checks. 

The discounter said it had a 6 percent sales increase at stores open at least a year. These sales, known as same-store sales, are considered the best indicator of a retailer’s health. 

Saks, hurt by weakening demand for luxury products, reported same-store sales fell 4.8 percent, more than expected. The company, which operates Saks Fifth Avenue and department stores including Proffitt’s and Parisian, also said it expects second-quarter losses to be at least double what Wall Street expected. 

But AnnTaylor Stores Corp., although it reported a 17.4 percent drop in same-store sales, had some good news. The retailer said it expects second-quarter earnings to be a penny more than analyst projections. 

A pleasant surprise also came from Dillard’s Inc., which reported a 7 percent gain in same-store sales, beating expectations. 

July, with its big clearance sales, is one of the least important months in the retail calendar. But while August is more indicative of the back-to-school season, July usually offers a glimpse of where business is heading. The economy’s weakness is making it hard for analysts to make projections. 

“There is a lot of confusion about when all of this will end,” Niemira said. 

Many analysts are questioning retailers’ fall merchandising strategy: huge inventories of denim to boost sales. 

“There’s too much denim around, and while it will make some waves, it is likely to disappoint,” said Kurt Barnard, president of Barnard Retail Trend Report, published in Montclair, N.J. 

Analysts are carefully watching how Gap, which reported a 12 percent drop in same-store sales, will fare for back to school with its heavy stock of denim clothes.