Friday August 16, 5:11 pm Eastern Time
Reuters Business Report
Retailers in Slow Back-To-School Start
By Jean Scheidnes
NEW YORK (Reuters) - Early readings on the vital back-to-school shopping season are showing few signs of life, and U.S. retailers are likely to fall back on discounts to revive business as kids grudgingly face the new school year. ADVERTISEMENT
Amid the current uncertain economic conditions, parents and kids are scrutinizing price tags more than ever, and analysts say spending is shifting to discounters and chains known for value, rather than cachet.
"It's easier to run into a discounter to get everything you need, particularly if you have children," said Diane Swonk, an economist at Bank One and an ardent patron of discount stores for school-related goods.
But even discount retailer Target Corp. (NYSE:TGT - News) on Thursday said apparel was not selling as well as basic school supplies, though it expects a surge in coming weeks as the season peaks.
"It's shaping up to be a difficult, thus far, back-to-school season. What I'm looking for is what the sequential movement in sales will do. Collectively, to date, most retailers sound like sales are below plan," said Hibernia Southcoast Capital analyst Robin Murchison.
Apparel retailers, in particular, are off to a sluggish start and are already beginning to cut prices aggressively.
Children's Place Retail Stores Inc. (NasdaqNM:PLCE - News) on Thursday said it was encouraged by the early customer response to reduced prices, especially "two-for" items. Analysts said the items were performing better than expected.
But not more than five shoppers were spotted at Children's Place in Manhattan's Herald Square on Friday afternoon, despite a large red sign boasting 50 percent off already reduced prices on kids' clothes.
The junior's department at Macy's Herald Square, the world's largest store, resembled a deserted discotheque, with hip-hop tunes and strobe lights but very few customers. Macy's is owned by Federated Department Stores Inc. (NYSE:FD - News), which on Wednesday said fall sales would be weaker than planned.
Consumers, shaken by a volatile stock market and fears that the United States could be facing a "double dip" recession, have curtailed spending, with the greatest impact landing on retailers who sell mainly clothing and some discretionary items.
GAP'S TROUBLES PRESSURE COMPETITORS
Gap Inc. (NYSE:GPS - News), the largest U.S. specialty apparel retailer, on Thursday said its early August sales were below projections despite a restyled clothing assortment and a new ad campaign focused on jeans, the mainstay of the Gap brand.
Gap last week mailed out a 20-page booklet about jeans, and has been offering $10 off any pair of jeans through Aug. 23.
Despite those efforts, the company -- which includes the Gap, Banana Republic and Old Navy chains -- said sales of denim were disappointing. Gap also said to expect more promotions in response to heavy competition. This weekend, Gap is offering $20 off women's boot cut jeans.
Gap's discounting is sure to exert pressure on many specialty apparel retailers, analysts said.
American Eagle Outfitters Inc. (NasdaqNM:AEOS - News), a youth-oriented apparel chain, on Thursday said sales so far in August were below its plans, in part because back-to-school shopping had not yet picked up steam.
"We believe teens will take a more value-oriented approach in their back-to-school shopping, and American Eagle could be squeezed by more value-oriented retailers," U.S. Bancorp Piper Jaffray analyst Jeff Klinefelter said in a research note.
Teens are typically impervious to adult concerns such as stock market swoons, but analysts say parents, who subsidize about half of teen spending, are tightening the purse strings.
American Eagle, its rival Abercrombie & Fitch Co. (NYSE:ANF - News), and other chains are stocking more back-to-school clothes that buyers can wear now instead of waiting for cooler weather. For example, they are selling cotton rather than wool sweaters.
Even so, retailers are not seeing any good trends on sweater sales, Hibernia's Murchison said.
Compelling fashion trends may help some retailers to drive sales if they have the right merchandise.
Too Inc. (NYSE:TOO - News), which sells fashion-forward clothes for girls, on Wednesday indicated that sales for the month to date were in line with expectations.
"The peasant trend is being balanced by the preppy look, and tweens are mimicking older girls trends earlier than before," Credit Suisse First Boston analyst Richard Baum said in a research note.
Demand for denim, despite Gap's troubles, also continues to be robust, analysts said. |
