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And, Retail Sales Tank, except for Walmart...

Retailers Report a Sales Collapse

By STEPHANIE ROSENBLOOM
Published: November 6, 2008

Sales at the nation’s largest retailers fell off a cliff in October, casting fresh doubt on the survival of some chains and signaling that this will probably be the weakest Christmas shopping season in decades.

The remarkable slowdown hit luxury chains that sell $5,000 designer dresses as badly as stores that offer $18 packs of underwear, suggesting that consumers at all income levels are snapping their wallets shut.

Sales at Neiman Marcus, the luxury department store, dropped nearly 28 percent in October compared with the same month last year. Sales fell 20 percent at Abercrombie & Fitch, nearly 17 percent at Saks, 16 percent at Gap and nearly that much at Nordstrom.

Of the more than two dozen major retailers that reported on Thursday, most had sales declines at stores open at least a year, the majority of the decreases in double digits. Deep discounters like Wal-Mart and BJ’s Wholesale Club reported gains.

Consumer spending represents two-thirds of the nation’s economic activity, and analysts said the striking sales declines at retailers almost certainly portended an extended, severe recession. The reports highlighted once again the depth of the economic problems confronting President-elect Barack Obama.

Consumers are cutting their spending for many reasons, but high on the list is the weakening employment picture. Even people who still have jobs are pinching pennies as they hear of layoffs among friends and family. Unemployment has hit 6.1 percent, and a new jobs report due Friday is expected to show further deterioration.

“October was every bit as bad we feared,” said John D. Morris, a retailing analyst with Wachovia. “Maybe worse. October’s numbers were so disappointing, particularly in the final week, which had to leave retailers in a state of high anxiety going into the holiday season.”

Indeed, the situation for retailers is so dire that it is creating opportunity for any consumers in a mood to spend money. Seven weeks before Christmas, stores are offering eye-catching bargains as they struggle to move merchandise.

“This is the year the consumer has been given a holiday gift beyond belief,” said Marshal Cohen, chief industry analyst for NPD Group. “You can get anything, anywhere, at any price.”

Malls are papered with sale signs, some seven feet tall and obscuring storefronts. New merchandise is being marked down before it even hits the sales floor. Stores are extending their hours and offering the kinds of deals — “doorbusters” — that are usually reserved for the day after Thanksgiving, known as Black Friday.

Kohl’s will stay open until midnight this Friday and offer an array of doorbusters, such as $250 diamond earrings for $77.99. Kmart is offering “early Black Friday” deals on Sundays, such as a Sylvania 32-inch LCD television for $439.99, instead of the usual $549.99.

Even Wal-Mart, whose sales at stores open at least a year were up 2.4 percent in October, began a big discount program on Thursday, lowering prices on thousands of food and gift items. It is cutting the price of a Magnavox Blu-ray player to $198 from $229, and of the Battleship board game to $10 from $14.38.

“Wal-Mart’s beating the promotional drum as loud as ever and as early as ever in advance of Christmas,” said Bill Dreher, an analyst with Deutsche Bank.

Only a few months ago, retailers thought they were prepared for the economic slowdown. They cut inventories in anticipation of weak back-to-school sales. But to their shock, sales declines reached double-digits in September, only to get worse in October.

The result? Retailers have too much fall merchandise still on their shelves, even as Christmas merchandise is starting to arrive.

“I’ve never seen as many ‘percent off the entire store’ promotions as we’re seeing right now,” said Kimberly Greenberger, a retail analyst at Citigroup who has been studying apparel sales and promotions for a decade.

Retailers that include American Eagle, Ann Taylor, Chico’s, Soma, Gap, Victoria’s Secret, Bath & Body Works, Talbots and J. Jill have offered discounts on their entire merchandise lines or are letting shoppers buy one item and take 50 percent off a second, she said.

“What we’re hearing anecdotally from different retailers is that when they’re putting something on sale at 30 or 40 percent discount it is no longer having an effect on consumers,” Ms. Greenberger said. “They’re having to cut prices 50 to 60 percent to get consumers interested.”

Two stylishly dressed friends spending time in Midtown Manhattan on Thursday said they used to enjoy shopping. “I want to impulse-buy again,” said a wistful Louise Van Veenendaal, an actress. But these days, economic anxiety is prompting the women to steer clear of stores. They refuse even to look at sales circulars.

“I’m much poorer than I’ve ever been,” said her friend, Kate Pistone, also an actress, who makes ends meet by working at a restaurant. Sales there have been declining. “I made $5 last night,” she said.

Analysts who spend time prowling the nation’s stores to track trends say that consumers are simply shell-shocked by all the grim financial news.

“You walk the mall and consumers look like zombies,” said Mr. Morris of Wachovia, after visiting a mall last week. “They’re there in person, but not in spirit.”

While the stores’ price cuts are good news for consumers, they are a dangerous tactic for retailers.

Retailers usually make most of their profit during the Christmas shopping season. And while they always offer impressive sales, they plan to discount only about 25 percent of their merchandise, not half of it, Mr. Cohen said. Too much discounting erodes profits. And by cutting prices so early, retailers risk running out of stock, or color and size options, before the season’s home stretch.

A few retailers have strong balance sheets, but many do not, and with credit hard to find they can ill afford a disastrous Christmas season. Analysts said they expected a new wave of bankruptcies after the first of the year.

Bankrupt and ailing retailers are undercutting some of their healthy peers. Last week, for instance, Mervyn’s announced a 149-store liquidation sale just in time for the holidays. Other such sales are already under way at Steve & Barry’s and Linens ’n Things. Circuit City, the struggling electronics chain, began liquidation sales this week at 155 stores it is closing.

Mr. Cohen of NPD Group said wise retailers would not sacrifice profits just to shove goods out the door. But he acknowledged that in such a panicky climate, the race to discount merchandise had become nearly unstoppable.

“What’s happening is the retailer is almost saying, ‘Please just come in,’ ” he said. “ ‘We’ll pay you to shop.’ ”