Weak retail sales in June raise worries

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NEW YORK (AP) – After yet another weak month, retailers are preparing to fight for their share of crucial back-to-school shopping. But they may have to keep discounting to keep consumers coming in, given escalating job uncertainty.

Particularly worrisome in Thursday’s same-store sales reports: Mall-based teen stalwarts like Abercrombie & Fitch were among those hit hardest as families looked for bargains.

Wal-Mart Stores Inc., the world’s largest retailer, is expected to be a big winner as it woos young shoppers with trendy electronics and fashions, but its sales are no longer included in the monthly data.

“We don’t see signs of recovery. This is not going to be a consumer-led boom anytime soon,” said Michael Dart, a retail strategist and leader of private equity practice for consulting firm Kurt Salmon Associates.

Ken Perkins, president of retail consulting firm Retail Metrics LLC., agreed, noting that the June retail reports indicate that many parents will forgo brands in favor of the lower-priced items and will buy less overall.

“Instead of buying four pairs of pants, they will buy three or two,” Perkins said. “There will be a continued focus on need-based and discounted items.”

Retailers in all sectors reported weak same-store sales for June, but mall-based clothing stores suffered most compared with a year earlier, while some discounters scraped by. Same-store sales – sales at stores open at least a year – are considered a key indicator of a retailer’s health.

Even low-priced Costco Wholesale Corp. saw same-store sales decline compared with last June, when federal stimulus checks helped business.

The International Council of Shopping Centers-Goldman Sachs same-store sales tally for June was down 5.1 percent, worse than the latest forecast for a 4.5 percent decline. The results were slightly worse than the sluggish average declines of 4.4 percent seen since February, the start of most retailers’ fiscal year.

Still, Michael P. Niemira, chief economist at ICSC, said he sees positive signs – like solid results at Ross Stores Inc. and TJX Cos., which offer name-brand apparel at discounts – that he believes could augur a spending recovery. He is hopeful the current government stimulus package will bolster the economy later this year.

Rain certainly dampened June sales. Many areas from the West Coast to the Northeast received two or three times their normal June precipitation last month, according to National Oceanic and Atmospheric Administration’s National Climatic Data Center.

But financial worries are clearly discouraging shoppers. While the number of newly laid-off workers filing initial claims for jobless benefits fell last week to the lowest level since early January, that was largely due to changes in the timing of auto industry layoffs.

Continuing claims unexpectedly jumped to a record high. And jobs remain scarce. The latest federal report, which showed wages shrinking and higher job losses than expected in June, is increasing concerns about consumers’ ability to spend in the months ahead.

Merchants are relying more now on shoppers’ paychecks to fuel purchases because consumers’ two other key sources of funding – credit cards and home equity loans – have shrunk. But shoppers are seeing their earnings dwindle.

Consumer confidence, as measured by the nonprofit Conference Board, also dropped in June, reversing a three-month upward trend fueled by a stock market rally that is fizzling too.

Given such economic headwinds, analysts say discounters and other low-price operators will keep drawing customers away from mall-based stores.

As part of its effort to get shoppers to rely on it for more than essentials, Wal-Mart is launching an exclusive teen collection in August designed by teen pop star Miley Cyrus and BCBG founder Max Azria. About 90 percent of the items in the new line will sell for $12 or less.

This fall, analysts will closely monitor discounter Target Corp., which has been stumbling because of its reliance on nonessentials like trendy jeans and towels. It reported a worse-than-expected decline in same-store sales of 6.2 percent but expects to meet or exceed analyst expectations for second-quarter profit after a cost-cutting campaign it said was successful.

Meanwhile, department stores like J.C. Penney and Macy’s Inc. continued to face declines, though June’s were milder than analysts forecast. The winners in the apparel sector were TJX and Ross. TJX reported a 4 percent gain – better than expected – and raised its second-quarter earnings outlook. Ross posted a 1 percent gain.

At Abercrombie & Fitch, which has seen its fortunes reverse as young shoppers pull back on higher-priced brands, same-store sales fell 32 percent in June, even more than expected. American Eagle Outfitters Inc. reported a 11 percent drop.