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VOL. 128 | NO. 155 | Friday, August 09, 2013

Retailers See Slow Start to Back-to-School Season

AP

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NEW YORK (AP) – Shoppers are holding off on back-to-school shopping, and those who delay long enough might be rewarded with some steep discounts from desperate retailers.

Revenue at stores open at least a year – an industry measure of a retailer's health– rose 3.8 percent in July, the slowest pace since March, according to a preliminary tally of 10 retailers by the International Council of Shopping Centers. The figure, which excludes drugstores, was below a 5.5 percent increase in June.

Costco Wholesale Corp., typically a strong performer, was among the retailers reporting disappointing figures.

Many stores were already offering discounts and other come-ons to get shoppers to spend on the new shipments of fall clothing that started flowing in mid-July. But experts say even more deal are coming this month as stores try to boost sales for the back-to-school season, which runs from mid-July through mid-September.

"It was a lousy start," said Walter Loeb, a New York-based independent retail consultant. "There will be even more discounts to make up the sales."

Ken Perkins, president of RetailMetrics LLC, a research firm, agrees.

"A vast number of shoppers are sticking to their shopping lists and are being very deal-driven," he said.

Only a sliver of retail chains now report monthly sales figures, and the list doesn't include Wal-Mart and many large chains. But Thursday's tally adds to evidence that shoppers are being frugal about their purchases, particularly clothing. The back-to-school season is the second-biggest selling period behind the winter holidays.

On Monday, teen retailer American Eagle Outfitters Inc. slashed its second-quarter outlook because of weak traffic and sluggish sales of women's merchandise. The teen retailer cited a highly promotional environment that only got tougher in July.

On Thursday, rival Aeropostale Inc. warned that it would have a wider loss than expected when it reports its second-quarter results later this month. It also blamed weak traffic and lots of discounting.

A clearer picture of how the back-to-school season is faring will emerge next week when major retailers like Wal-Mart Stores Inc. and Macy's Inc. report their second-quarter financial results. Analysts will dissect the outlooks merchants have for the fall quarter.

Overall, the back-to-school season faces a big challenge: Shoppers are shifting their spending away from clothing and toward bigger-ticket spending on their homes and cars because they have more credit available, says Stifel Nicolaus analyst Richard Jaffe.

He says they're using this "fiscal freedom" to spend on the more expensive items, cutting into lower-priced impulse buys like clothing. That has stores competing hard for dollars.

July is when stores clear out summer merchandise to make room for goods for back to school. Slow sales indicate that shoppers are holding off on buying clothing as they face other expenditures. A heat wave helped clear out discounted summer goods but did little to move warmer fall clothing among shoppers who are sticking to what they need immediately.

While jobs are easier to get and the turnaround in the housing market is gaining momentum, the improvements have not been enough to sustain higher levels of consumer spending for most Americans. Most are juggling tepid wage gains with higher costs of living.

Americans are still trying to digest the 2 percentage-point increase in payroll taxes, which took effect Jan. 1. That means that take-home pay for a household earning $50,000 a year has been sliced by $1,000. Gas prices are rising again, and on top of that, shoppers are being increasingly forced to pay for more of their children's school supplies, sometimes including books.

That has forced parents to stick to necessities. Major retailers like Wal-Mart Stores Inc. have noticed that they're staggering their purchases instead of having one big back-to-school shopping spree.

Amanda Simpson, 38 and the mother of a 6-year-old daughter and a 1-year-old boy, reflects the cautious trend.

Simpson said she is budgeting $150 for clothing and $50 for school supplies for her daughter. She plans to buy some of her daughter's clothes at local thrift shops and instead of buying one $35 pair of shoes, she will buy three $15 pairs.

She is staggering these purchases and says she needs to budget in case of surprise expenses.

"I am much more conscious of how I spend," said the Coppell, Texas, resident. "We are not in that position that we are going to get huge raises."

Helen Gym, 45, who has three children, ages 16, 14 and 10, said back-to-school clothing is not a top priority. Gym, whose children go to Philadelphia public schools, said the fiscal crisis there is forcing parents to pay for more supplies, which could mean books.

"We're doing what we can afford and we are trying to be thoughtful," said Gym, who works part-time for a community organization. "I stopped doing the massive back-to-school (shopping) thing."

Against this background, Michael P. Niemira, chief economist at the International Council of Shopping Centers, expects that total sales for the back-to-school season will rise 3.1 percent from last year to $42.2 billion. That would be less than the 3.6 percent gain in 2012, but near the 3.3 percent average annual increase for the past 10 years.

Families with school-age children are expected to spend an average of $634.78 on clothing, shoes, supplies and electronics, down from $688.62 last year, according to a survey of about 5,600 shoppers from the National Retail Federation that was conducted by Prosper Insights & Analytics.

Costco said Thursday its U.S. and international revenue each rose 4 percent in the four-week period that ended Aug. 4, a performance that fell short of Wall Street estimates. Analysts surveyed by Thomson Reuters expected, on average, revenue growth of 5.1 percent for the total company and 4.5 percent and 5 percent, respectively, from the U.S. and international portions

Among the bright spots in the reports was L Brands, which owns Victoria's Secret and Bath and Body Works. The retailer said that revenue at stores open at least a year rose 3 percent in July, better than expected, and the company raised its second-quarter earnings outlook. Analysts expected a 1.5 percent increase for the four weeks ended Aug 3.

Follow Anne D'Innocenzio at www.twitter.com/adinnocenzio

Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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