Discount sales surge, but other retailers suffer

Associated Press

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 results.

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.

A recent report from American Express Retail Index and initial projections from the International Mass Retailers’ Association haven’t offered any comfort either, estimating that back-to-school spending will fall slightly from a year ago.

"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 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," said Niemira. "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 who have taken advantage of the offer immediately spent about 25 percent of the money in Wal-Marts. Check cashers at Sam’s Clubs were spending about 80 percent of the money, the company said.

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.

Before the end-of-month surge, sales were generally poor for most merchants. Analysts are concerned that when short-term incentives, like the tax rebates and tax-free weeks that some states are implementing, are over, sales will fall back.

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