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VOL. 35 | NO. 31 | Friday, August 5, 2011

Retailers report solid sales gains for July

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NEW YORK (AP) — The back-to-school season got off to a strong start as discounts and high temperatures in July drove shoppers to air-conditioned malls. But merchants worry that momentum won't continue through the remainder of the second-biggest shopping period of the year as the weather gets cold and the deals dry up.

Despite a flow of bad economic news that kept consumer confidence shaky, a number of retailers reported July revenue on Thursday that beat Wall Street estimates, including discounter Target, department store Macy's, and luxury chain Saks. The International Council of Shopping Centers' preliminary tally of retailers' revenue at stores open at least a year — a key indicator of a merchant's health — was up 4.6 percent, a slower pace than June's 6.9 percent gain but in line with forecasts.

While the numbers offer encouraging signs for the start to the back-to-school shopping period, which runs roughly from mid-July through September, there are concerns that shoppers will stick to the habits of the Great Recession by focusing on necessities and waiting for sales. That could be a big problem for retailers, which are raising prices in order to offset rising fuel, labor and other production costs.

"Early going, July looks like it's shaping up to be a solid month despite all the economic headwinds," said Ken Perkins, president of RetailMetrics LLC., a research firm. "But the concern is whether shoppers will buy back-to-school items at full price."

The back-to-school season is important for retailers because it accounts for 16.1 percent of annual retailers' revenue, according to the International Council of Shopping Centers. It's also an opportunity for retailers to gain insight into consumers' shopping habits heading into the biggest shopping season of the year, which starts on the day after Thanksgiving.

Retailers will get a better sense of how consumers are spending during the back-to-school season in August when the bulk of the purchases is done. But so far, analysts and retail trade groups are sticking to their forecasts for the season, ranging from unchanged to up 3 percent compared with a year ago. The National Retail Federation expects families to spend $603.63 on back-to-school items, from clothing to supplies, down slightly from last year's $606.40.

"Overall, July sales reports were decent, but the worry is when you look further out over the next three to six months," said Michael P. Niemira, chief economist at the ICSC. "The growing economic uncertainty may take its toll on future spending."

The concern among retailers and analysts is that while the recession officially ended in June 2009, many shoppers, particularly in the low-to-middle income bracket, feel like it never ended. For many, wage gains haven't kept pace with higher household costs for food and gas, which is $1 more per gallon than a year ago. Home values remain depressed, and companies are not hiring. Adding to that, this fall shoppers will face higher price tags as retailers try to pass on higher labor costs in China and raw material prices.

Surveys from the National Retail Federation, Deloitte L.L.P. and other groups show that customers plan to buy only what the family needs, focus on fat discounts and reuse last year's items. Denise Edwards, 32, a customer service representative at a cable company, said she won't be shopping for her daughter, who is in pre-kindergarten, until September when she expects more sales.

"I'm saving up my money more because you never know what happens," The Bronx, N.Y., resident said.

Retailers that cater to higher-income shoppers have fared the best in the difficult economy. New York-based Saks Inc. led the luxury pack with a 15.6 percent increase for the month. That was much higher than the 8.5 percent increase analysts forecast.

Wholesale club operator Costco Wholesale Corp. also attracted higher-income shoppers and others who like the treasure-hunt experience in its stores. The company, which is based in Issaquah, Wash., said revenue from stores open at least a year climbed 10 percent in July, compared with the 8.6 percent analysts surveyed by Thomson Reuters had predicted.

Stores catering to low- and middle-income shoppers have been hurt the most by the economic downturn. Still, many of those retailers posted sales gains during the month, though analysts say some have benefited from a boost in spending by their wealthier shoppers. Furthermore, the biggest sellers have been basic merchandise.

Target, which has been beefing up its grocery business, said revenue at stores opened at least a year rose 4.1 percent in July. The discounter said shoppers picked up more groceries and health and beauty products and spent more per transaction. Back-to-school revenue is off to "a solid start," the Minneapolis company said.

Penney's revenue at stores opened at least a year was up 3.3 percent for July. The department store chain, based in Plano, Texas, didn't start its back-to-school ad campaign until last week, about a week later than last year, because it expects shoppers to procrastinate. Penney is also showcasing how shoppers can layer on fashions as a way to stretch their budgets, by selling shirts with belts, for instance, as one piece.

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