Summer Retail Slump Continues

by Doug Desjardins

After an encouraging start to the year, retailers were hoping the increase in sales would build through the summer but so far, that hasn’t been the case.

Following a trend that started in April, retail sales in July were better than last year but didn’t improve as much as expected as the economy continued to recover at a glacial pace. Though there were a few exceptions – most notably department stores – sales numbers fell below expectations for the fourth straight month.

“We don’t see retailers opening their wallets in any more than a tepid way,” said John Long of Kurt Salmon Associates. “There has not been positive movement by economic gauges.”

Chain store sales rose 2.8 percent in July but fell short of the 3.5-percent jump projected by analysts. The 28 top retailers followed by Thomson-Reuters reported similar results, with sales increasing 2.9 percent for July compared to a forecast that called for a 3.1 percent increase.

“It’s a very narrow set of stores that are doing very well,” said Michael Niemeria, chief economist for the International Council of Shopping Centers. “We’re still digging our way out of this recessionary hole.”

J.C Penney had one of the most disappointing months, with sales falling 0.6 percent in July during a month when analysts were expecting a 3.5-percent increase. Target reported a 2-percent increase in sales for the month, just short of the 2.5-percent jump the retailer expected. Costco had a better outcome, with sales rising 6 percent for the month and beating projections for a 5.5-percent increase.

“It’s clearly not the kind of momentum that retailers want to be building heading into peak back-to-school selling,” said Ken Perkins, president of research firm Retail Metrics.

In an effort to boost retail sales, more than a dozen states are instituting “tax holidays” and waiving state sales taxes to encourage shoppers to spend. Illinois launched a 10-day tax holiday on Aug. 6. To date, 17 other states have tax holidays planned for August including North Carolina, Florida, Massachusetts and New Mexico.

Craig Shearman, a spokesman for the National Retail Federation, said tax holidays usually produce a noticeable increase in sales for retailers. And this year they’re serving a dual role “helping families stretch their dollars farther during the current economy.”

Though most retailers are optimistic the gradual rebound in sales that began earlier this year will return, there’s still some wariness the slow recovery will force them to become more promotional and offer steeper discounts than they would like.

“Retail has become a battleground for market share,” said Long. “And because consumer wallets are not growing, the battle is for every dollar they spend.”

Resources

Retailers Report Tepid Sales Growth in July

Tax Holiday is the Season When Many States Waive Sales Taxes

Retail Sales Rise a Modest 2.0% at Major Chains

U.S. Retailers’ July Sales Trail Estimates on Spending Cuts