Many Retailers See Sluggish August Sales

Shoppers on New York's 34th Street pass a 40% off sales sign in front of a Banana Republic store, Friday afternoon Aug. 29, 2008. In a bid to pull in frugal shoppers into their stores, the nation's retailers are slashing their prices on everything from jeans to home appliances. But those 50 percent discounts on jeans and the 60 percent reductions on dinnerware will likely come at a big price for retailers. (AP Photo/Richard Drew) AP Photo/Richard Drew

Many of the nation's retailers struggled with a sluggish back-to-school season, though Wal-Mart posted higher August sales Thursday as shoppers focused on buying essentials amid worries about high gas and food prices.

As merchants announced their August sales results, Wal-Mart Stores Inc., the world's largest retailer, reported a solid gain that beat Wall Street forecasts. But mall-based apparel stores, like teen merchants Wet Seal Inc. and New Albany, Ohio-based Abercrombie & Fitch Co., remained in the doldrums. And high-end retailers Saks Inc. and Nordstrom Inc. posted weaker results as their affluent customers start to feel pinched.

"Consumers are spending on necessities and looking for value and the lowest price possible. And it's reflective again in the results that we are seeing," said Ken Perkins, president of research company RetailMetrics LLC.

The International Council of Shopping Centers-UBS sales tally rose 1.7 percent in August, below the 2 percent forecast. Excluding Wal-Mart, the results were unchanged from a year ago. Last month's pace was below the 2.3 percent average since the beginning of the industry's fiscal year in February. The tally is based on same-store sales, or sales at stores opened at least a year, and are a key indicator of a retailer's health.

A report from the Labor Department offered more evidence that the slowing economy is taking its toll on jobs, a bad sign for consumer spending. The number of workers seeking unemployment benefits jumped unexpectedly last week, reversing three weeks of declines.

Such reports aren't comforting to the retail industry as it prepares for the critical holiday season. Many merchants had entered the fall season with inventories well below a year ago, but that may have not been enough as last month proved to be even weaker than planned. In some cases, stores were hurt by having too little clearance merchandise, cutting into sales. That was the case with TJX Co. and Bon-Ton Stores Inc., according to their reports.

One encouraging factor is that Hurricane Gustav, which hit the Gulf Coast on Monday, wasn't as bad as analysts feared - and that sent oil prices even lower. Gas prices have fallen from more than $4 a gallon to a national average of $3.678 on Wednesday, but remain well above the year-ago figure of $2.792, according to AAA and the Oil Price Information Service.

Still, Michael P. Niemira, chief economist at the ICSC, thinks that gas prices have to fall to $3 per gallon or below before shoppers will increase their spending. And even then, Americans still face other economic worries such as slowing personal income, higher food prices and a slumping housing market.

"The fall in oil prices is a bit of good news, but we need to see more positive economic news," Niemira said. He added that oil prices remain volatile. In fact, retailers are now getting ready for the next series of tropical storms, which could send oil prices back up.

Wal-Mart reported a solid 3 percent gain in same-store sales, helped by sales of groceries and back-to-school products. Analysts surveyed by Thomson Reuters had expected a 1.6 percent increase. Including fuel, the retailer's same-store sales rose 3.5 percent.

"The underlying business performance for Wal-Mart U.S. continued to show strength and the improved relative performance has resulted in market share gains," Eduardo Castro-Wright, the president and chief executive of Wal-Mart's U.S. stores, said in a statement.

Rival Target Corp.'s same-store sales fell 2.1 percent, though better than the 2.6 percent decline expected. The cheap chic discounter hasn't fared as well as Wal-Mart in the weak economy as Target heavily emphasizes nonessentials such as home furnishings and trendy jeans.

Another bright spot is warehouse clubs as shoppers buy in bulk to save money. Costco Wholesale Corp. posted a 9 percent same-store sales increase, though below the 9.6 percent estimate. Excluding the effect of higher gas prices, Costco's U.S. same-stores sales rose 6 percent.

Among luxury department stores, Saks recorded a 5.9 percent drop in same-store sales, steeper than the 4.7 percent decline that Wall Street expected. Nordstrom's 7.9 percent drop was worse than the 7.1 percent decline expected.

On Wednesday, J.C. Penney Co. announced that same-store sales at its department store business dropped 4.9 percent, slightly better than the 6.3 percent decline that analysts had projected.

Gap Inc. recorded an 8 percent drop, though it was less steep than the 9.7 percent decline forecast.

Limited Brands, the Columbus, Ohio,-based operator of Victoria's Secret and Bath & Body Works, suffered a 7 percent drop, mostly in line with the 6.9 percent decline estimated.

Business at teen merchants was disappointing. Abercrombie & Fitch's 11 percent drop in same-store sales was worse than the 7.9 percent decline expected. Wet Seal recorded an 8.7 percent drop, steeper than the 7.5 percent decline estimated.

Pacific Sunwear of California Inc.'s same-store sales fell 6 percent; Wall Street had expected a 8.8 percent decline.
By AP Business Writer Anne D'innocenzio
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