Shoppers Across the Board Pulling Back in Weak Economy

NEW YORK, Aug. 19 -- From affluent shoppers at Saks to bargain-hunters at Target, from Home Depot to office-supplier Staples, consumers are pulling back, and that's hurting retailers and raising more concerns about how they'll do the rest of the year.

The latest quarterly reports show more signs of financial stress on shoppers, as Target's customers stick to necessities and have trouble making their credit card payments. Saks says it's now seeing its high-end designer consumer cut back, whereas previously it was only the aspirational customers who were retrenching.

And while falling gas prices in recent weeks should provide some relief to consumers, economists say that won't be enough to offset all the other economic problems out there, from a housing slump and a weakening job market to soaring food prices and tighter credit.

"It's a small positive, but you still have all the other negatives," said Carl Steidtmann, chief economist at Deloitte Research. He predicted that retailers are facing "tough" back-to-school and holiday seasons.

The increasing frugality among consumers is challenging even Target's forte in cheap chic. The discounter, whose performance has been lagging behind Wal-Mart, said its second-quarter profit fell 7.6 percent, to $634 million, as its customers focused on necessities such as food and paper towels.

Target said sales in the three months ended Aug. 2 grew 5.7 percent, to $15 billion, while same-store sales slipped 0.4 percent. Same-store sales are an important retail industry measure that gauges sales at stores open at least a year.

Target offered a cautious outlook for the third quarter during an erratic start to the back-to-school season and said it would slow its store expansion in fiscal 2009.

"The customer is very cash-strapped right now and in some ways, our greatest strength [has] become somewhat of a challenge," Target chief executive Gregg Steinhafel told investors during a conference call. "During these tough times, some of our consumers don't want to be tempted as much as they have in the past."

At Home Depot, executives said one bright spot was basic repair jobs that shoppers are undertaking, even as bigger-ticket purchases continue to fall. Profit for the three months ending Aug. 3 fell to $1.2 billion from $1.59 billion a year earlier. Revenue slid 5.4 percent, to $21 billion, and same-store sales fell 7.9 percent.

Home Depot said it expects earnings per share from continuing operations to drop 24 percent for the year. The company also projects that full-year sales should decline by 5 percent.

"As we look forward into the second half of the year, we see continued pressure on our markets," chief executive Frank Blake told investors during a conference call.

Saks, meanwhile, reported a wider-than-expected loss for the second quarter and forecast weak same-store sales growth in the second half. The luxury retailer said it lost $31.7 million for the quarter, compared with a loss of $24.6 million in the year-ago period. Revenue fell 3.5 percent, to $669.2 million.

Staples, which is scheduled to issue a second-quarter earnings report in two weeks, warned that the results, excluding its acquisition of Corporate Express, would be softer than anticipated, dragged down by lower customer traffic and smaller orders.

Retail stocks tumbled along with the broader market. Home Depot's shares fell $1, to $25.96, while Staples lost $1.03, to $23.55. Target fell 33 cents, to $49.72 and Saks tumbled 93 cents, to $10.29.