June a weak month at stores

Gain in sales lags as gas costs, debt hinder shoppers

Retailing

July 07, 2000|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Rising gas prices, higher borrowing costs and heavier debt loads put a crimp in spending at the nation's stores in June, leaving retailers with disappointing sales for the month.

Even though chain store sales rose an average 3.4 percent last month compared with June 1999, the gain lagged behind the 5 percent average gain posted monthly for the first half of the year, according to the Bank of Tokyo-Mitsubishi's tally of 76 large retailers.

"Retail sales in June suffered from a combination of forces, including sticker shock at the gas pump," especially in the Midwest, said Kurt Barnard, president of Barnard's Retail Trend Report. "Every time you fill up at the gas pump, you're out $30 or $40. That's money out of people's pockets they would have been spending on things you'd buy in retail stores."

The average cost of a gallon of gas has risen nearly 70 cents from a year ago.

Also contributing to weaker sales is higher credit-card debt - $621.4 billion in the United States - and hard-to-beat performances from most retailers from June a year ago, Barnard said.

"It is fair to say Americans have finally given up the habit of free spending which they exercised so abundantly over the past year and a half," he said. "Today, Americans will continue to buy what they want and what they need - but not on impulse."

Disappointing same-store sales prompted some retailers to lower earnings expectations for the second quarter.

Sales dipped 2 percent at Gap Inc., and the chain said second-quarter earnings will likely be 3 cents below the current estimate of 26 cents a share.

Sales rose 4.8 percent at Wal-Mart Stores Inc., a bigger increase than many of the retail giant's competitors but still one of its lower monthly sales gains in a year and a half.

Kmart Corp. sales dropped 1 percent last month.

"June sales were disappointing," said Chuck Conaway, Kmart's chairman and chief executive officer, who said overall sales came in below plan.

At Sears, Roebuck and Co., sales rose just 2.3 percent and apparel sales fell off from a year ago. But Arthur C. Martinez, chairman and chief executive officer, said he expects second-quarter earnings to exceed expectations.

Larry Montgomery, chief executive officer and vice chairman of Kohl's Corp., said the chain was satisfied with its 5 percent sales gain, given that that came on top of a 15 percent increase in June a year ago.

It is still unclear how much retail spending has slowed because of the Federal Reserve's six interest-rate increases in the past 12 months. But some analysts see higher borrowing costs beginning to temper spending.

"We're beginning to see the effect of the rising interest rates," said Jeff Stinson, an analyst with Midwest Research. "I don't think the consumer can hold out forever in an environment where variable rate mortgages and credit cards continue to be more expensive.

"The question really becomes how long will the consumer pull back and to what degree," he said.

He predicted continued weakness for this month, and an abundance of markdowns and clearance sales to move merchandise off the retail floor.

Apparel sales lagged during the month, though retailers reported stronger sales in home decor, sporting goods, appliances, consumer electronics, hardware and lawn and garden items.

Department stores suffered as they continued to lose market share to mass discounters. They were further hurt by lagging apparel sales, analysts said.

"A lot of the fashion that was out there really missed the mark with the consumer," Stinson said. "If you don't give consumers a reason to buy, then they won't."

Sales fell 1.4 percent at the May Department Stores Co., inched up 0.5 percent at Federated Department Stores Inc. and declined 2.1 percent at J. C. Penney Co. Inc. Federated said it marked down some of its department store merchandise to reduce inventories.

Specialty retailers with a more targeted consumer base fared better in apparel sales in June. Sales rose 6 percent at the Limited Inc. and 6.6 percent at Paul Harris Stores Inc.

Monthly retail sales

Company...............Monthly .........Monthly.......YTD ..........YTD

........................SALES*.......same-store.....sales* ......same-store

.......................................pct. change..................pct.change

Ann Taylor stores....$113.7............+4.1........$495.8..........+1.3

Federated...........$1,416.0...........+0.5......$6,153.0..........+2.5

The Gap.............$1,170.0...........-2.0......$4,830.0..........-2.0

J. C. Penney........$2,860.0...........-2.1.....$12,950.0..........-2.4

Kmart...............$3,540.0...........-1.0.....$14,390.0...........-0.1

Kohl's Corp............$493.1...........+5.0......$2,128.0...........+6.9

May Dept. Stores...$1,240.3...........-1.4......$5,331.4...........-0.1

Men's Wearhouse.....$116.9............+6.9........$505.2...........+5.5

Sears...............$2,803.6............+2.3.....$11,849.0...........+2.9

Target Corp.........$3,160.0...........+1.1.....$13,280.0...........+2.2

Wal-Mart..........$17,978.0...........+4.8.....$76,559.0...........+6.4

*In millions

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