Sun-kissed kids aren't the only ones dreading the back-to-school season.
Retailers are showing signs that their best efforts to reel in consumers are falling short. And should slumbering back-to-school sales continue, it could portend trouble for the vital holiday season.
The nation's largest chain stores rang in an overall sales increase of 2.6 percent in July -- a drop of nearly 40 percent from June's tax-rebate assisted numbers, according to figures released Thursday from the International Council of Shopping Centers (ICSC).
Minneapolis-based Target Corp. fell shy of its projections -- and of Wall Street's -- posting a 1.2 percent dip in sales at stores open more than a year, an important financial measure known in the industry as same-store sales.
The gap between Target and its deep-discount rivals widened, as consumers continue to feel stress over housing, wages, jobs, debt and the cost of daily necessities such as food and fuel. Costco's sales shot up 10 percent, helped along by gasoline sales, while Wal-Mart Stores Inc. gained 3 percent.
Back-to-school shopping is more than an annual marketing event: It typically marks retailers' second-largest season after Christmas. An estimated 75 million kids and young adults are heading back to school this year, but multiple consumer surveys show shoppers are paring back spending plans.
ICSC is projecting the slowest back-to-school shopping season since 2001, with stores getting a mere 1 percent bump.
Britt Beemer of America's Research Group is less optimistic, forecasting a range of minus 2 percent to plus 0.5 percent.
"I wouldn't want to be an apparel retailer in a mall today," Beemer said.
A recent survey by Deloitte found seven in 10 people said they were going to spend less, with almost half of those saying they'll cut back by more than $100. Nearly half of parents polled by America's Research Group plan to buy only the necessary minimum and will supplement later in the holiday season. About 45 percent said they're spending less because they have less money.
Beyond the monthly sales check-in, if sluggish sales continue, even more store closings are possible.
The ICSC projects that closures in the United States could rise by 7 percent over last year.
3,000 closings this year
Retail chains announced nearly 3,000 closures during the first half of this year, including venerable names such as Starbucks, Liz Claiborne, Ann Taylor, Talbots and Home Depot. By year's end, the total is expected to reach 6,500.
A Target spokeswoman said Thursday the retailer has not had any outright closings this year, though a dozen stores nationwide were closed for renovation or relocation. So far, Target hasn't said it will veer from its projected growth plans of about 100 stores this year, despite consecutive months of sluggish sales.
Other local retailers have felt the pinch, however. Edina-based Regis said it would close 160 stores, and Christopher & Banks said last week it would close all 36 of its upscale Acorn boutiques.
Vacancy rates at strip malls haven't been this high since 1996, according to a July report from real estate research firm Reis. For the first time since 1980, more space became available to rent at strip malls than was rented out. In the Twin Cities, vacancies are up 10 percent, to 7.6 percent, since last year, according to a midyear report from NorthMarq. Small-shop retailers in strip malls and neighborhood centers have been socked even harder, with 16 percent vacant space.
Larger retailers can be more resilient to business cycles than the smaller stores that go up next to them. But if Wal-Mart's July sales numbers offer a window into the lingering malaise of the middle-class, there doesn't seem to be much to cheer about.
Wal-Mart's customers seem to be holding out until payday, leading to wide sales swings from week to week, according to Wal-Mart's U.S. President and CEO Eduardo Castro-Wright. He said in a statement that stores "continue to see a pronounced paycheck cycle at the end of the month."
Having been Wall Street's darling for the past three months by exceeding sales expectations, Wal-Mart, too, fell short of what analysts were expecting in July.
Mark Miller of William Blair & Company said in a report Thursday that he was "surprised by the degree of deceleration in Wal-Mart's business" in July. Miller noted that when the nation's taxpayers received stimulus checks in 2001, Wal-Mart continued to reap benefits for six months.
"So what turns the corner for consumers? It's a matter of time," ICSC chief economist Michael Niemira said Thursday, saying he's convinced a recession is upon us.
"We'll have to see some stability in housing -- we're not expecting a rebound," he said. "That starts to give you a foundation for improvement going forward."
Housing experts don't expect that to happen until there's a balance between supply and demand -- which isn't expected to happen until sometime in 2009, or later.
Jackie Crosby • 612-673-7335