Stores may post weakest October sales on record

Published: Saturday, November 1, 2008 at 6:01 a.m.
Last Modified: Saturday, November 1, 2008 at 1:09 a.m.

NEW YORK After slashing their spending in September as the financial meltdown intensified, shoppers went into full retreat in October, spooked by rising layoffs and shriveling retirement funds.

Retailers reporting October sales data for established stores next week expect to see the weakest performance for that month since at least 1969 in many cases percentage declines in the mid-teens and are frantically cutting prices even more to pull in shoppers.

"Consumers just stopped shopping," said Michael P. Niemira, chief economist at the International Council of Shopping Centers.

That is only raising more worries about the holiday season and the financial health of the industry, which has seen a string of liquidations from Mervyns LLC to Linens 'N Things. Men's Wearhouse Inc. is slashing prices on all leather jackets and selected sweaters by 50 percent, while Saks Fifth Avenue is cutting some women's fashions by 40 percent.

Kmart, a division of Sears Holdings Corp., is giving shoppers for the first time a jump-start on Black Friday deals, starting this Sunday. Kmart, which said it had planned the deals before September, will be offering weekly savings of 25 percent to 50 percent on 15 home electronics items through Nov. 23. Meanwhile, J.C. Penney Co. is already cutting prices on its tree ornaments.

Stifel Nicolaus & Co. analyst Richard Jaffe describes many of the discounts as "unplanned and extreme."

With the economy expected to deteriorate, the goal is to get consumers into the stores as early as possible to spend on holiday gifts, while trying to clear out fall merchandise piling up. While shoppers are expected to buy for their children this holiday season, they may not buy much else, and economists say spending will remain weak at least through early 2009.

The good news is that gas prices have receded in recent weeks, but there's not much else to cheer about as Americans feel the pain from the financial meltdown, from tightening credit to mounting layoffs. Job security is a key factor in consumers' ability to spend.

Carmen Velez, 49, from the Bronx, says worries about being let go from her job as a home health care aid has meant doing away with her $75 monthly clothing splurges at J.C. Penney and other nonessential purchases. She says the family she works for may not be able to afford to keep her employed.

She said she will buy some holiday gifts for her two grandchildren, but that's about it.

After posting a lackluster 1 percent gain in same-store sales in September, according to the ICSC-Goldman Sachs index, many analysts expected October's performance to be weak, but not this bad. Niemira estimates that same-store sales will fall 0.5 percent, the weakest October performance since at least 1969, when the index began. Excluding Wal-Mart Stores Inc.'s figures, that number could be down as much as 3 percent, according to Niemira.

But even discounters and warehouse clubs, which are expected to fare better, are seeing their sales slow.

Same-store sales are sales at stores opened at least a year and are considered a key indicator of a retailer's health.

Niemira expects same-store sales to be up 1 percent for November and December together, but he's not sure how the economic uncertainty will play out.

"Will consumers find a little more optimism after Tuesday's (presidential) election?" he asked. Nevertheless, he expects spending to remain weak through early next year.

A string of reduced forecasts from the likes of Liz Claiborne Inc. to Williams-Sonoma Inc. only serve as harbingers of bad news to come when retailers report their same-store sales figures Thursday.

Williams-Sonoma Inc., which owns Pottery Barn, its namesake kitchen goods stores and other brands, lowered its profit outlook Wednesday. While Chairman and CEO Howard Lester said that Pottery Barn stores are suffering the most in recent weeks, momentum has slowed significantly across all its brands. He noted that same-store sales have worsened from a 14 percent drop in August to a 20.1 percent decline in September to being down nearly 27 percent so far in October.

"As we look forward, it is extremely difficult to know how the consumer will respond in the fourth quarter," he said in a statement. But he says he's assuming that the weak sales will remain until the end of the year.

Last week, Liz Claiborne Inc., a big supplier to department stores, lowered its fourth-quarter and full-year profit outlook.

"This is one of the worst Octobers in my memory," said Walter Loeb, a retail consultant who has been in the industry for 50 years. "Retailers are in a serious panic. Not only does this affect sales, but store profits."

Many analysts say that stores just can't sustain such a prolonged sales weakness and expect more to be in bankruptcy after the holidays. JP Morgan analyst Christopher Horvers wrote in a note released Friday that if consumer spending remains weak, Circuit City Stores Inc. will likely have to file for bankruptcy protection.

In the latest blow to the consumer electronics retailer, the New York Stock Exchange warned Circuit City on Thursday that its stock price was not high enough for continued listing. The NYSE said Circuit City's average closing price has been less than $1 over 30 consecutive trading days as of Oct. 22, falling below the exchange's requirement.

Ken Perkins, president of research company RetailMetrics LLC, says that the retail industry is expected to post its sixth consecutive overall decline in profits when the bulk of companies report third-quarter results next month. He estimates that profits will be down 12.9 percent. For the fourth quarter, profits are expected to be down at least 2 percent, but that figure will likely be reduced as stores report October sales.

"The outlook is not particularly good," he said. "It's heading south."

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