Retail Sales Are Weakest in 35 Years
The nation's retailers turned in the worst sales figures in at least a generation on Thursday, starting the holiday shopping season with double-digit declines across a broad spectrum of stores.
For many chains, the precipitous sales drops that took hold in September and October got worse, not better, in November, despite relatively strong sales in the few days after Thanksgiving.
The International Council of Shopping Centers, an industry group, described November's figures as the weakest in more than 35 years. Declines were recorded in every retail segment the group tracks, with the biggest coming from department stores, with sales down 13.3 percent compared with November a year ago, and specialty apparel retailers, down 10.4 percent.
Some retailers, though, have begun to figure out how to manage in the bleak environment, selling huge amounts of merchandise at steep discounts to generate cash. That will erode profits, of course. Department store profits will most likely plummet 20 to 60 percent in the final three months of the year, said Bill Dreher, senior retailing analyst with Deutsche Bank Securities. But retailers who are unloading merchandise early in the season are at least demonstrating an ability to take control.
"Even if they're giving away the product, it reduces inventory levels and keeps the problem from continuing," Mr. Dreher said. "It shows retailers are being disciplined."
Retail stocks rallied Thursday as investors interpreted the sales report as showing that, with sufficient discounts, goods can be sold in volume despite the poor economy. The Standard & Poor's retail index rose 1.5 percent.
The discounts being dangled by stores are the biggest retailing analysts have ever seen. "When did you ever see, on Dec. 1, 70 percent off apparel on the high end?" said Claire Gruppo, managing director of Gruppo, Levey & Company, a New York investment bank. "You just don't."
Any retailer that refused to trot out jaw-dropping bargains in November paid the price.
For example, Abercrombie & Fitch, the chain that uses sexy bodies in seductive poses to sell clothes to teenagers and young adults, has refused to get on the discount bandwagon. In November, sales at stores open at least a year, an important measure of retail health, fell a whopping 28 percent for the company, in contrast to a 2 percent increase for the period a year ago.
That is a far worse decline than previous months: Sales at Abercrombie & Fitch stores open at least a year were down 14 percent in September and 20 percent in October.
Saks, on the other hand, has driven consumers into shopping frenzies with eye-popping deals on luxury names like the Armani Collezioni and Zac Posen. The tactic worked: In November, Saks had only a 5.2 percent decline in sales at stores open at least a year, clawing its way up from months of double-digit declines.
Other stores that improved their lot in November took a page from the same playbook. Neiman Marcus, for example, has also been selling luxury goods at startling discounts. Sales at Neiman Marcus stores open at least a year fell 11.8 percent in November — better than the 15.8 percent drop in September and the 27.6 percent dive in October.
"If you don't understand the consumer and his mood right now and you're doing things as usual," said Walter Loeb, president of Loeb Associates, a consultant firm, "you're not going to get any business."
Stunning declines have become the norm in retailing since sales first plunged in September amid the financial crisis. The November figures indicate the downturn is migrating to some discount and warehouse stores, some of which even had sales growth in October.
Ken Perkins, president of Retail Metrics, a research firm, said either Wal-Mart Stores was stealing market share from its bargain competitors or the whole sector was softening.
At Target, sales at stores open at least a year tumbled 10.4 percent, in contrast to a 10.8 percent increase a year ago. Sales at Target were down 3 percent in September and 4.8 percent in October.
Sales at Kohl's stores open at least a year sank 17.5 percent, in contrast to a 10.2 percent increase last year. Sales at Kohl's stores dropped 5.5 percent in September and 9 percent in October. Sales at Costco were down 5 percent in November after a 7 percent increase in September and a 1 percent dip in October.
Even some stores with October sales increases lost their edge in November. Children's Place, which had a 4 percent sales increase in October, sank 7 percent in November. Aéropostale, which was up 1 percent in October, was down 5 percent in November.
Of all the major retailers, only Wal-Mart and BJ's Wholesale Club, two of the country's best-known discount chains, thrived, in part because of robust grocery sales. Wal-Mart, in fact, enjoyed the biggest grocery sales spike in its history.
With new lines of brand-name merchandise from makers like Sony and Samsung, and with rock-bottom prices and an ability to move high volumes of merchandise, Wal-Mart seems to have cornered the market on Christmas this year.
The company began the critical holiday season by exceeding expectations. Sales at stores open at least a year increased 3.4 percent in November, not including fuel, compared with a 1.5 percent increase a year ago.
(The company made a point of being subdued in its sales announcement, noting its sadness that a worker, Jdimytai Damour, had been trampled to death at a Wal-Mart in Valley Stream, N.Y., when rowdy shoppers burst through the doors on Black Friday.)
Sales at BJ's Wholesale Club stores were up 4.1 percent in November, not including fuel, compared with a 7.7 percent increase a year ago.
Many retailers were buoyed by sales over Black Friday weekend, which increased about 0.9 percent, compared with a 6.5 percent increase last year, according to ShopperTrak, a research firm. Yet the weekend after Thanksgiving did not account for the majority of retailers' November sales. Results for the month were weakened, many people in retailing said, by the calendar — a later Thanksgiving this year meant fewer post-Thanksgiving shopping days in November.
"The Thanksgiving weekend improvement was not enough to significantly alter the month's outcome," Linda M. Farthing, president and chief executive of Stein Mart, said in a statement on Thursday. "We expect to continue aggressive promotional activity through the remainder of the year."
It was a plan echoed on Thursday by other retailers, like American Eagle Outfitters and Kohl's.
John D. Morris, an analyst with Wachovia whose Holiday Sale Rack Index tracks promotions at specialty mall retailers, said discounts were up 12 percent compared with last year. That may not sound like much, but it is the biggest jump in the decade-long history of the index. Usually, a big promotional period sends the index up 5 percent.
"It's a terrible story for retailers and their margins," said Michael Unger, a principal with Archstone Consulting. "But if you're a consumer looking for a good deal, you will find it."