American consumers went into hiding in September, leaving retailers with dismal sales and an uncertain future well beyond the holiday season as the fallout from the financial meltdown pushes spending even lower.
As retailers reported their monthly sales figures Wednesday, even discounters weren’t immune to shoppers’ mounting worries about financial security.
“Discretionary spending has come to a trickle,” said Ken Perkins, president of research company RetailMetrics LLC. “Consumers are the most worried I have seen since at least the 1991 recession. There are so many factors playing on their psyche.”
Wal-Mart Stores Inc., the world’s largest retailer, said sales of discretionary items were weak as it posted solid results that were nevertheless a bit below expectations. Target Corp. fared far worse, reporting a bigger-than-expected drop and said it expects problems with its credit card business to last through the rest of the year as customers have trouble making payments.
Luxury stores such as Neiman Marcus Group Inc. and Saks Inc. also suffered sharp drops, as well-heeled shoppers held off on buying $600 stilettos and other luxuries. Many mall-based apparel stores and department stores, including J.C. Penney Co. and American Eagle Outfitters Inc., find themselves mired in a deep sales slump.
With no clear spending recovery in sight, retailers are navigating in the dark about how much to cut their spring orders and store expansions to address the dramatic changes in consumer behaviour that are expected to persist at least until next year.
Desperation has set in as the critical holiday season approaches. From discounters to luxury stores, merchants have begun cutting holiday orders in recent days, even as goods start to flow into stores, according to Arnold Cohen, co-founder of Mahoney Cohen and Co., an accounting firm for the apparel industry. A slew of companies, from J.C. Penney Co. to Saks Inc., cut their third-quarter outlooks Wednesday as they step up discounting to pull in shoppers. And many are delaying spring orders amid so much uncertainty, Cohen said.
Thomson Reuters estimates that its sales tally for September will be up only 1%, well below the 1.9% average pace from January through August. The final tally, to be released today, will reflect results from other merchants such as Gap Inc. and TJX Cos..
Analysts and store executives expect spending could deteriorate even more as the problems on Wall Street filter through the economy, with layoffs expected to rise and the credit markets remaining frozen. That means consumers are having a hard time getting loans and credit lines. That’s adding to more stress for shoppers, who were already contending with high gas and food prices and a slumping home market. Wal-Mart offered a tepid sales outlook as it reported a 2.4% gain in same-store sales, just missing expectations. The company said it was hurt by having to temporarily close 341 stores because of hurricanes Ike, Gustav and Hanna. Wal-Mart said it expects same-store sales at its U.S. stores to be up from 1% to 2% for October.
Rival Target Corp., which has struggled because of its heavy emphasis on non-essentials such as fashions and home furnishings, reported a 3% drop in same-store sales, worse than expected. It also cut its third-quarter outlook as mounting defaults on payments for its store credit card has led to higher write-offs.
