Slow school shopping creates holiday jitters

NEW YORK -- When it came to buying their children new jeans and trendy tops, parents held the line: They focused on basics at discounters and waited for the best deals, resulting in weak August sales at many stores. That's a bad sign for the holiday season as families may be just as cautious with their gift-giving.

Not even lower gas prices may offer retailers much relief in the months ahead as shoppers see personal incomes fall and food prices remain high. In fact, Wal-Mart, the world's largest retailer, and warehouse club operators such as Costco remain among the few bright spots as shoppers focus on the lowest prices.

"Consumers are feeling pressured economically," said Stifel Nicolaus & Co. analyst Richard Jaffe. But he added that what's also hurt back-to-school business is the lack of new trends to excite teens.

"What you have in your closet is certainly adequate. And that's not satisfying for retailers and teens," he added. "The fear is that they stay in flip-flops."

Ken Perkins, president of research company RetailMetrics, agreed. "I don't see anything changing anytime soon. Parents are still going to buy for Christmas, but it is definitely going to be less than last year."

As retailers reported their sales results Thursday, most mall-based apparel stores turned in sluggish results. Teen retailers that fared poorly included Wet Seal, Abercrombie & Fitch and American Eagle Outfitters. And high-end retailers Saks and Nordstrom posted weaker results as their affluent customers start to feel pinched.

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 flat with 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 of a weaker job market, 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 retailers as they prepare for the critical holiday season. Many had entered the fall season with inventories well below their levels of a year ago, but that backfired at several stores including TJX, Wet Seal and Bon-Ton. All three were hurt by having too little clearance merchandise to satisfy bargain-hunting consumers.

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.

Michael Niemira, chief economist at the shopping center council, thinks gas prices will have to fall to $3 before shoppers increase their spending. Even then, they face other economic worries such as slowing 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. Oil prices, too, remain volatile. Retailers are now preparing for the next series of tropical storms, which could send oil prices back up.

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

Wal-Mart added that as with all seasonal events, customers are waiting longer to do their shopping and said that with more schools opening later this year, overall business picked up at the end of the month.

Rival Target's same-store sales fell 2.1 percent, though that was better than the 2.6 percent decline expected. Target also said back-to-school sales picked up speed late in the month. 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.

Most mall-based apparel store chains that cater to young shoppers struggled.

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

Abercrombie & Fitch's 11 percent drop was worse than the 7.9 percent expected. Wet Seal recorded an 8.7 percent drop, steeper than the 7.5 percent forecast.

But Pacific Sunwear of California Inc.'s same-store sales fell 6 percent; Wall Street had expected a 8.8 percent decline. And on Wednesday, American Eagle reported a 5 percent dip in same-store sales, not as steep as the 6.5 percent decline expected.