July 13, 2007 in Business

Sluggish sales feed retailers’ worries

Anne D'innocenzio Associated Press
 

NEW YORK – Consumers were eager to buy iPhones and flat-screen TVs in June, but their reluctance to purchase clothing and other non-essentials has retailers worried about the success of the back-to-school shopping season.

As merchants reported their generally modest sales gains Thursday, it was clear that consumers’ uneasiness about higher good and gas prices and the weakening housing market was forcing many of them to think twice before spending. The disappointments included department stores like Macy’s Inc. as well as apparel chains such as AnnTaylor Stores Corp. Discounters fared well, particularly Wal-Mart Stores Inc., whose renewed emphasis on low prices helped drive sales gains above analysts’ expectations.

Sales were not as weak as some analysts feared, but the fact that June was nonetheless sluggish did not augur well for back-to-school shopping that begins this month. June is a time when retailers clear out summer goods to make room for fall merchandise.

Most obvious for most consumers is how much they’re paying for gasoline – prices at the pump that fell after peaking in late May are again rising, and the national average price for a gallon of unleaded regular is higher than $3.

And although teens were spending again in June after a slower spring, analyst said it is still too early to tell how the season will fare. The improvement was reflected in reports from retailers including Pacific Sunwear of California Inc. and Abercrombie & Fitch. Despite the concerns about back-to-school, J.C. Penney Co. said it saw a good response to its early fall merchandise.

“The picture for the consumer hasn’t changed much,” said John Morris, managing director at Wachovia Securities. “The consumer is facing a lot of headwinds.”

Morris noted that the spending outlook is also becoming more uncertain because an increasing number of schools are starting classes later. Teens usually wait to do the bulk of their shopping until after school starts because they want to see what their friends are wearing.

The International Council of Shopping Centers-UBS sales tally of 50 stores rose 2.4 percent in June, compared with a 3.0 percent gain in the year-ago period. The tally is based on same-store sales, which reflect business at stores open at least a year and are considered a key indicator of a retailer’s health.

June’s results extended the slowing trend retailers have experienced since February.

For some stores, June results were depressed in part by a shift in the calender that moved the Memorial Day weekend business into May. But retailers of what are known as discretionary merchandise such as apparel and home goods are also coming under increasing pressure as consumers are forced to pay more for food and gas. The still-weakening housing market is also making shoppers shy about spending.

Meanwhile, apparel merchants have problems of their own, including a continuing absence of must-have fashions and competition from the latest electronic gadgets.

Craig R. Johnson, president of Customer Growth Partners, a retail consultancy in New Canaan, Conn., said hot gadgets like Apple Inc.’s iPhone are keeping sales of consumer electronics strong.

“The fashion must-haves of the world are not apparel but the iPhones of the world,” said Johnson. “They are wearing technology as fashion.”

The fact that the labor market is healthy is lending support to overall consumer spending levels. The Labor Department said Thursday the number of laid-off workers filing unemployment claims dropped to 308,000 last week, the lowest level in almost two months and a decline of 12,000 from the previous week.

© Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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