Retail Sales Fell Further in September

As Shopper Traffic Slows and Confidence Drops, Stores Prepare for Disappointing Third Quarter

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NEW YORK ( -- Retailers today reported grim September sales figures, while doing their best to temper expectations for the coming months. Across channels, companies saw precipitous sales declines at stores open at least a year. That led many to either lower expectations for the third quarter or note that results would be at the low end of their guidance.

Jennifer Black, a retail analyst, wrote in a research note this week that traffic at malls, including tourist destinations, appeared to come to a "grinding halt" in the middle of last week. "It is our conclusion that consumers are buying needs and great values that can justify the purchase, but overall they are in a state of confusion and concern about the uncertainty of this country's and their personal future."

Teen retailers such as American Eagle and Pacific Sunwear posted declines, on top of declines in August, underscoring the weakness of the back-to-school shopping season. American Eagle saw same-store sales slide 6%, while Pacific Sunwear reported a 5% falloff. JCPenney and Kohl's, also popular back-to-school destinations, reported drops of 12% and 6%, respectively.

Falling confidence
"During the September period, further weakening of the economic climate was accompanied by unprecedented events in the financial markets," said Myron Ullman, chairman-CEO of JCPenney. "As a result, our business was impacted by falling consumer confidence and spending levels, and mall traffic experienced an even greater decline than in previous months."

Mr. Ullman added that it is "prudent to lower expectations for the coming months." The retailer cut third-quarter guidance and projected low double-digit same-store sales declines for October.

Luxury-oriented retailers, which have been expected to take a hit as a result of turmoil on Wall Street, reported steep drops for the month. Neiman Marcus saw same-store sales plunge 13%, while Saks Fifth Avenue and Nordstrom reported 11% and 10% falloffs, respectively.

Demand to remain weak
"Based on our September performance and the current economic environment, we expect customer demand will remain weak for an extended period of time," said Burt Tansky, chairman-CEO of the Neiman Marcus Group, which operates Neiman Marcus and Bergdorf Goodman. "Our entire team is focused on stimulating sales, lowering inventory levels, reducing expenses and evaluating all capital projects."

Discount stores continued to be a lone bright spot on the retail landscape. Target reported a modest 3% decline in same-store sales, while Wal-Mart and Costco reported gains of 2% and 7%, respectively. Wal-Mart, however, noted that it benefited from two first-of-the-month paydays in September, while there would be no similar boost in October. "Customers remain more concerned about their own financial health, followed by concerns about cost of living and gas prices," Wal-Mart said during a sales call. "The paycheck cycle was pronounced during this period."

Some retailers chose to report same-store sales early, given the Yom Kippur holiday. Others, including Gap Inc., Limited Brands, Aeropostale and TJX Cos. will report either after the market closes today or tomorrow.

Gloomy holiday season
As retailers curb expectations for the remainder of the year, a gloomy -- and extremely promotional -- holiday season appears inevitable. "The turmoil on Wall Street, the presidential campaign and the growing economic pressures have proven sufficient to distract consumers, keeping them out of stores," wrote Richard Jaffe, an analyst at Stifel Nicolaus, in a note previewing same-store sales. "We anticipate a highly promotional Q4, and the retailers that can both shout the loudest and offer the greatest value ... will likely pick up share."

Another ominous trend is the loss of jobs in the retail sector. In September, retailers shed 40,100 jobs, well above this year's average pace of 28,000 jobs lost per month. Challenger, Gray & Christmas, a job-placement consulting group, predicted last month that holiday hiring could fall significantly short of last year's figures. And that was before the latest financial crises.

Understaffed stores would present an additional challenge to already struggling retailers. Chris Donnelly, partner at Accenture's retail practice, said that it's a stressful time of year, made more stressful if retailers cut labor. "If consumers are coming into stores with their limited money and don't feel they're getting the service or the value they expect, it's going to be a tough season for those retailers," he said.
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