Retail sales fall short of expectations

Although many of the nation's stores kicked out deep-discounts in mid-September in hopes of countering the steady drumbeat of dismal economic news, few shoppers were tempted.

Monthly sales results released Wednesday by the bulk of the country's publicly traded chain stores were dreary overall, with 63 percent of retailers falling short of expectations, according to analyst Ken Perkins of RetailMetrics, a research company based in Swampscott, Mass.

Discounters such as Wal-Mart Stores Inc. and Costco Wholesale Corp. outperformed department stores, with same-store sales rising 2.4 percent at Wal-Mart and 7 percent at Costco.

Their results helped boost nationwide monthly same-stores sales to 1.7 percent in September, according to preliminary figures from the International Council of Shopping Centers.

All this is before the financial woes started bleeding beyond Wall Street and into Iceland, Germany and Asia, before consumers started fearing for their bank balances and before Congress agreed to a $700 billion bailout plan.

The news has analysts and retailers fretting about what could shape up as the worst holiday season in decades. "Discretionary spending looks to have come to a halt," Perkins wrote in a report Wednesday.

About 60 percent of retailers reported Wednesday, a day early because of the Yom Kippur holiday, with the remainder releasing their monthly sales reports today.

Target Corp. reported a bigger-than-expected drop of 3 percent in its stores open at least a year, a key measure of retailer health. Management had forecast sales between plus or minus 1 percent. The Minneapolis-based retailer also warned that its third-quarter earnings per share will fall below the company's earlier estimates of 52 cents, given declining store traffic and climbing write-offs in its credit card operation.

Apparel and home furnishings declined in the high single digits, Target said, while sales of nondiscretionary items such as health care products and food increased in the mid-single digit range. Even Wal-Mart Stores fell below analysts' expectations, though the company said hurricanes caused some 341 stores to close, lowering same-store sales by 0.4 percent.

Meanwhile, J.C. Penney (which saw declines of 12.4 percent), Menomonee Falls, Wis.-based Kohl's (down 5.5 percent) and Nordstrom (down 10.9 percent) all lowered their forecast for third-quarter profits.

In what could be a glimmer of hope, a new nationwide survey of high school students and their parents released Wednesday from Minneapolis-based Piper Jaffray found that teen spending on fashion apparel has ticked up about 1 percent since last year.

Parents said they've spent 9 percent more outfitting their teens since last year and a whopping 23 percent more in the past six months, likely on back-to-school outfits. Parents also said they increased their own spending on clothing and jewelry 15 percent in the past year.

While budgets are indeed tightening for both parents and teens, Jeff Klinefelter, the lead analyst on the 16th semi-annual survey, said sales of nonfashion items such as iPods, cell phones and video games are starting to slow (mainly because most kids already have them), and that's freeing up more discretionary dollars.

He said the numbers could signal the start of a "bottoming out" of the slowdown in discretionary spending, though it might not be apparent for six months to a year.

"Teens are very astute consumers," Klinefelter said. "Whether it be technology, fashion, media or music, they tend to be on the leading edge of trends. They're the earliest to accelerate spending on certain products and the earliest to get off."

The teen survey has telegraphed national trends, with fashion spending falling by double digits every six months since spring of 2006. Apparel was one of the first retail categories to get hit by the consumer spending slowdown, and consumers continue to turn a blind eye to retailers' efforts to get them to buy new clothes.

Klinefelter said it's a good bet that retailers will see a disappointing holiday season. But skittish consumers and volatile global market conditions make forecasting difficult.

Jackie Crosby • 612-673-7335