Retail sales continue to drop, raising fears about holiday season

NEW YORK - Shoppers remained tightfisted in July, raising concern about the back-to-school and holiday shopping seasons as well as for the broader economic recovery.

The big worry from the reports yesterday issued by major retailers is that frugal parents will focus on outfitting their children this fall with just necessities like notebooks and jeans. And fear is bubbling up that frugal parents might consider any extra splurges now as early Christmas gifts.

The persistent pullback despite signs of a stabilizing economy could stall the overall recovery since consumers account for 70 percent of all economic activity.

"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."

With the recession now in its 21st month, worries about job security, retirement accounts, and home values have made consumers focus on necessities like food and other basics. But stores are also grappling with a newly adopted frugality as consumers - even those that have jobs and feel secure about their assets - learn to save and stick to a budget. That fixation on frugality is likely to linger even after economic worries dissipate.

Michael Dart, a retail strategist and leader of private-equity practice for consulting firm Kurt Salmon Associates Inc., said he believed that based on what he had been hearing from consumers, some of those purchases may double as Christmas gifts as shoppers remain tightfisted.

"Shoppers are becoming much more practical," Dart said.

The bargain-hunting played out again in the retailers' reports, with mall-based apparel stores faring the worst. Among the disappointments were Macy's Inc. and teen retailers Abercrombie & Fitch Co. and the Wet Seal Inc.

The few bright spots were apparel discounters such as Ross Stores Inc. and the TJX Cos. Inc., operator of the T.J. Maxx and Marshalls chains, both of which reported sales gains - a rarity right now - that well-exceeded Wall Street estimates.

A number of special factors also depressed July's sales results. For example, 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 Labor Day weekend also stole momentum from July.

Perkins and other analysts have also noted that the uptick in car buying spurred by the government's "Cash for Clunkers" program might siphon sales from other categories, such as clothing.

A monthly compilation of more than 50 retailers' results by the International Council of Shopping Centers and Goldman Sachs Group Inc. showed overall same-store sales fell 5.0 percent in July compared with the year-ago period.

In the Philadelphia area:

The Bon-Ton Stores Inc. The York, Pa., department store chain said same-store sales for the four-week period ended Aug. 1 were down 9.8 percent compared with the prior year period. It cited less clearance inventory. Same-stores sales, a key retail gauge, measure activity at stores open at least a year.

Destination Maternity Corp. The Philadelphia company said its same-store sales slipped 8.3 percent in July because of unfavorable weather, difficult year-over-year comparisons, and fewer promotions.

Urban Outfitters Inc. The Philadelphia retailer reported second-quarter same-store sales down 6 percent on declines at its Anthropologie, Free People, and Urban Outfitters stores.

Rite Aid Corp. The drugstore operator's same-store sales slipped 0.6 percent in July, as the recession appeared to cut into sales of products at the front of the store.

Nationally, warehouse club operator Costco Wholesale Corp. reported its same-store sales dropped 7 percent in July, pressured by lower gasoline prices and the stronger dollar.

Target Corp., which has been stumbling because of its reliance on nonessentials such as trendy jeans, posted a worse-than-expected 6.5 percent drop.

Among department stores, Macy's reported a deeper-than-expected 10.7 percent drop in same-store sales. But luxury retailer Nordstrom Inc.'s decline was not as steep as anticipated, suggesting that the stock market rally may be boosting affluent shoppers' confidence.

- 6.0

percent

Urban

Outfitters

-9.8

percent

Bon

Ton

-8.3

percent

Destination

Maternity

-0.6

percent

Rite

Aid