Discounters benefited most from 4.3% rise in June sales

BUSINESS DIGEST

July 11, 2008|By Susan Chandler | Susan Chandler,CHICAGO TRIBUNE

Frugal-minded shoppers spent their tax rebate checks at discount merchants last month, boosting sales at some of the country's largest chains. But they stayed away from higher-priced department stores and specialty stores, causing sales to fall by double-digits at Nordstrom Inc. and American Eagle Outfitters Inc.

It was a sign that consumers are confining themselves to spending on the basics, and even then, they are looking for bargains, retail experts said. It also suggests the back-to-school shopping season will be weak and feature deep discounts right from the start.

"The price cutting will be as aggressive as we've ever seen it. It's already starting," said George Whalin, president of Retail Management Consultants in San Marcos, Calif. "This week, Office Depot was running ads saying, 'This is the official start of back to school,' and it's early July!"

Given sky-high prices for gasoline and rising food costs, no one in the retail trade was expecting June to be a blockbuster month, although it is a key period for sales of summer apparel. That said, merchants were hoping for a "stimulus" effect from tax rebates, and chains such as Wal-Mart Stores Inc., BJ's Wholesale Club Inc. and Costco Wholesale Corp., which all sell cheaper gas, got exactly that.

"Wal-Mart's number was pretty amazing," Whalin said, referring to the company's 6.4 percent increase in sales at stores open at least a year.

Because Wal-Mart is the world's largest retailer, its strong showing brought up the retail industry's overall results, translating into a June increase of 4.3 percent, which was stronger than expected, according to the International Council of Shopping Centers. Without Wal-Mart, industry sales rose only 1.9 percent.

Wal-Mart wasn't the only winner. Warehouse clubs turned in a strong showing as well.

Costco posted a 9 percent increase in June same-store sales, while B.J. Wholesale turned in a 16.5 percent rise. Budget-friendly dollar stores also got a boost last month, with Family Dollar enjoying an 8 percent surge in same-store sales.

However, the glass turned out to be half empty for many of the country's department stores and apparel merchants, which are predominantly located in shopping malls where rents are higher.

Seattle-based Nordstrom experienced an eye-popping 18.6 percent drop in June sales, which it blamed in part on a decision to shift its half-yearly sale for women and children from June to May. Sales at J.C. Penney Co. fell 2.4 percent, while retreating 5 percent at Dillards Department Stores.

Kohl's Corp., the low-priced chain with department store brands, was the exception, with sales rising 2.3 percent.

It would be easy to blame the poor showing on a rocky economy and anxious consumers, but veteran retail consultant Kurt Barnard says department stores have no one to blame but themselves.

"It's very simple. Department stores are risk-averse. They treat the consumer to the same things they have treated them to in past months and years," Barnard explained.

"That's particularly unfortunate because, in a down economy, consumers must be given an incentive to break through the barrier that dictates 'Don't spend.' The only way to accomplish that is to bring to the consumer a merchandise panorama that is exciting, interesting and maybe risky."

Susan Chandler writes for the Chicago Tribune.

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