Retail decline is seen ahead

August sales disappointed and holidays appear slow

Low-priced items moving

September 16, 2002|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

Consumer spending on cars and homes remains steady, but retailers from department stores to apparel chains are facing a potentially lean fall and holiday shopping season, analysts said.

The government reported last week that retail sales grew in August, but those figures were helped by sales of automobiles as consumers took advantage of zero-percent financing deals.

For many of the nation's largest chain stores, August - a critical "back-to-school" month for retailers - was disappointing, and that may signal future weakness for retailers, experts said.

"We're pretty cautious heading into the holiday season," said Alan M. Rifkin, a retail analyst with Lehman Brothers in New York. "Consumer confidence is lower and unemployment is higher this year than last."

In a report on the retail industry's holiday outlook, Rifkin noted the potential impact of six fewer shopping days this year between Thanksgiving and Christmas. That alone could depress sales by 1.5 percent to 2.0 percent, the report said.

Consumers had more cash to spend last year because of the federal tax rebate. Retailers also benefited from consumers spending less on tourism - and instead in stores - in the months after the Sept. 11 terrorist attacks, according to Rifkin's report.

Home-related merchants - from Pier 1 Imports to Bed, Bath and Beyond - should benefit this fall because of the resilient housing market, Rifkin noted.

But retailers are dealing with consumers concerned about job stability, an unsteady stock market and a possible war with Iraq, experts said.

"There are retailers who are much more pessimistic" going into the fall, said Michael P. Niemira, an economist with Bank of Tokyo-Mitsubishi in New York, which conducts a weekly sales survey of more than 80 major retailers.

Same-store sales rose only 0.1 percent in the first week of September, which included the Labor Day holiday shopping weekend, according to the bank's most recent survey.

"We saw a good spring [for retailers]. What has changed is that improvement in the overall economy has kind of ground to a halt," Niemira said. "Consequently, it's backing up through the retail channel as well."

Because of the shorter holiday shopping season, retailers will feel more pressure to make their sales in a tighter time frame, said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting firm.

"Retailers are slashing their sales forecasts for the holiday," Davidowitz said. "They're cutting inventory where they can and repositioning their inventory to make it more price sensitive.

"What's selling are the lower-priced items," he said, noting that discounters such as Wal-Mart and Kohl's should continue to do well in such a climate.

"In food stores, people are buying less prepared meat; they're buying cheaper items," he said. "My take is it's going to be a very weak Christmas. People are spending less."

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