Consumers take a breather

  • Article by: JACKIE CROSBY , Star Tribune
  • Updated: November 4, 2010 - 10:32 PM

October retail sales rose modestly as retailers gear up for a hoped-for burst in November and December.

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Britt Qualley, left, Dawn Maine and Susan Wiger, all teachers from Brainerd, Minn., who were visiting the Twin Cities for a conference, checked out the Mary Tyler Moore statue after leaving Macy’s downtown store, where they shopped the sales on Thursday.

Photo: Renee Jones Schneider, Star Tribune

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Based on October's muted sales, it's little wonder retailers have already started advertising Black Friday-like events.

U.S. chain stores posted a 1.6 percent same-store sales gain compared to last year, according to the International Council of Shopping Centers, as consumers enjoyed the warmer-than-usual weather and saved up for holiday gift spending. It was the weakest performance since April, when sales ticked up just 0.8 percent.

Ken Perkins, research analyst of RetailMetrics Inc., described October as "more tricks than treats in terms of surprises."

While retailers marked their 14th straight month of positive sales, 52 percent missed forecasts and only 41 percent beat expectations, RetailMetrics reported.

"There are some signs of life," said David Brennan, co-director of the Institute for Retailing Excellence at the University of St. Thomas, noting upticks nationally in new and existing home sales. "But the problem with the economy as a whole is there's no momentum.

"American consumers are getting much closer to living within their means, and they aren't putting stuff on their credit cards," he added. "While that's good for the individual consumer, it's certainly not good for retailing."

October is traditionally a slow month for the nation's merchants, a lull between back-to-school shopping and the ramp-up to the holidays. Hoping to loosen up the purse strings of consumers ahead of the November-December burst, a number of stores already are promoting doorbusters.

Deer season deals

Mills Fleet Farm's Minnesota stores opened at 6 a.m. Friday, two hours early, to align with Saturday's firearm deer hunting opener. In Black Friday fashion, the Brainerd, Minn.-based retailer planned to give away 300 hats, serve cookies and coffee, and offer extra-deep discounts for a limited time.

Sears started "Black Friday Now" deals last week. On Halloween, Toys 'R' Us put its Christmas toys on sale. Wal-Mart fired the opening salvo in the battle for consumer electronics earlier this week with $50-to-$200-off deals on televisions plus price cuts on laptops and video-game players.

"If retailers are engaging in this exercise this year, it means it must have been successful for them last year," said Akshay Rao, director of the Institute for Research in Marketing at the University of Minnesota's Carlson School of Management.

"Their biggest challenge is figuring out the optimal combination of incentives so they're not giving the store away and, as a consequence, left with no inventory when the price-insensitive shopper shows up at the door on Dec. 24 and you're out of TVs."

Retailers such as Macy's and Target Corp. are spinning October's sales numbers forward.

Macy's sales were up 2.5 percent, with CEO Terry Lundgren saying that the retailer ended the month with strong sales going into the holiday selling season. The Cincinnati-based chain raised second-half sales and earnings guidance.

The Minneapolis-based discount chain reported same-store sales of 1.7 percent, at the low end of expectations, after sales were slow the first two weeks of the month. Nondiscretionary items, such as groceries, health care and beauty, continue to outpace other categories.

CEO Gregg Steinhafel said in a statement that the company has high hopes that remodeled stores and a new program offering 5 percent off for Target credit card purchases "will cause guests to choose to shop with us more than ever, driving continued profitable market share gains for Target."

Teen apparel chain Zumiez was the month's biggest gainer, posting a 21.5 percent increase in same-store sales, which is a key financial measure for retailers because it takes out the effect of new store openings.

Upscale retail chains posted strong gains as well. Neiman Marcus saw sales increase 11.5 percent, Saks was up 8.1 percent and Nordstrom rose 3.4 percent.

Kohl's and J.C. Penney dipped 2.5 percent and 1.9 percent respectively.

"Overall, there are very few stellar performers out there," said Brennan of St. Thomas. "I'm still mildly optimistic, but the [October] numbers suggest that the holidays may be a bigger struggle for retailers than some of the forecasting firms have thought."

Recent surveys suggest that Americans are starting to feel better about the future. For the first time since May, the number of consumers who feel their personal finances are getting worse dropped, according to October's U.S. Spending Monitor report.

MasterCard Spending Pulse, which monitors spending across all payment forms, reports that apparel sales were up 8.2 percent in October. Luxury sectors, including jewelry, upscale restaurants and high-end department stores, also are gaining steam.

Consumers remain selective about their purchases, with unemployment stubbornly high and home values still depressed, retail experts say. The National Retail Federation forecasts a moderate increase of 2.3 percent in holiday spending this year, compared to last year's 0.4 percent.

"The ultimate arbiter of retail sales is going to be how consumers believe the economy will do next year," said Rao, adding that the election results nationally and in Minnesota show that "people are not happy; they are venting."

"It's not entirely clear to me how to interpret the election results in terms of economic satisfaction, and what, if anything a new and different Congress will do that isn't already being done."

Jackie Crosby • 612-673-7335

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