A Brutal October On the Sales Floor
Friday, November 7, 2008
Retailers are learning the hard way that there are many degrees of bad.
The industry had limped through the summer and early fall, hoping for better times even as sales growth slowed to a crawl and consumers hid their wallets. But new data released yesterday show that retail sales actually dropped in October, making it the worst performance for that month in decades, according to one analysis.
"Simply awful" was how Michael P. Niemira, chief economist for the International Council of Shopping Centers, a trade group, described the retail environment in October. "Consumers put off any discretionary spending."
The ICSC reported that sales at stores open at least a year -- a crucial measure of a company's health known as same-store sales -- declined 0.9 percent in October compared with last year for about 40 major national retailers. Sales have not performed that badly in October in the 39 years that the group has tracked them.
Particularly hard hit were luxury department stores, as wealthy shoppers suffered heavy stock market losses. October same-store sales at Neiman Marcus plunged 14.5 percent from a year before. Saks's sales fell 16.6 percent. Nordstrom's was down 15.7 percent. The results defied the conventional wisdom that affluent consumers are recession-resistant.
"The more money you had over the last month, the more you lost," said Stephen Hoch, marketing professor and director of the Baker Retailing Initiative at the University of Pennsylvania's Wharton School. "No one is really immune here."
At the Neiman Marcus in Tysons Corner yesterday afternoon, some parts of the store had more salespeople than customers. On the third floor, a rack of designer dresses was marked down in a "pre-sale": a $500 navy blue, sleeveless Teri Jon dress went for $300, and a $395 purple Badgley Mischka jacket was reduced to $237.
Hasina Mizell, 34, of Arlington has shopped there for five years and said she noticed that the store had been putting more on sale lately -- which was just fine with her.
"I can't justify paying full price for anything," she said.
Robyn Sevlian, 27, of Sterling was having lunch with two friends at a restaurant on Neiman Marcus's lower level.
"I don't shop here," said Sevlian, a paralegal. "I shop at Macy's and Target. It's so far out of my price range, it's not funny."
The only bright spot in retailing has been discounters and their low-price message. Same-store sales at Wal-Mart's U.S. locations and Sam's Club division rose 2.4 percent last month, excluding gasoline sales. Eduardo Castro-Wright, president of Wal-Mart's U.S. stores division, said the company's aggressive discounting, particularly on basics, brought more people into its stores.
The world's largest retailer also announced another round of price cuts yesterday on merchandise ranging from $10 toys to a $24 coffee maker to a $298 laptop.
"Customers see that we are broadening the price gap against our competitors," Castro-Wright said.
Daniel Burke, 48, a self-employed architect in Vienna, was shopping for sheets at a Wal-Mart in Fairfax yesterday. He said business is slow and that he started coming to Wal-Mart in August to save money on his diabetes medication. "You never would have caught me at a Wal-Mart before the economy faltered," he said. "Everyone is price-conscious more this year than ever before."
Wholesale clubs also posted positive results for October. Same-store sales at Costco's domestic division grew 2 percent; BJ's rose 6.6 percent, excluding gasoline. "Now is the time of the discounter," said Stacy Janiak, U.S. retail leader at the consulting firm Deloitte.
At Target, the results told a different story. The cheap-chic retailer's same-store sales slid 4.8 percent in October, which chief executive Gregg Steinhafel called "very disappointing." The retailer has struggled to hold on to shoppers who are forgoing fancy tea kettles in favor of lower prices.
Few retailers escaped October unscathed. Gap had a 16 percent drop in same-store sales. Department store chain Macy's sales fell 6.3 percent, and J.C. Penney's plunged 13 percent.
The results were not entirely a surprise. Shoppers were spooked by the financial turmoil on Wall Street, and effects of the government's stimulus checks earlier this year have long since disappeared.
Consumer spending last quarter fell by the steepest amount since 1980, according to government data. In a recent survey by Discover Financial Services, 66 percent of shoppers said they spent the same or less in October than in the previous month -- and the same amount said they plan to spend less during the holidays this year.
"October's numbers show consumers clearly are hunkering down to ride out the economic and financial crisis," said Margo Georgiadis, chief marketing officer of Discover Financial Services.
Janiak, the retail analyst at Deloitte, said she expected sales to pick up in the next two months as fuel prices continue to decline and shoppers get into the holiday spirit. But she cautioned that the financial crisis has so far challenged even the most educated guesses.
"At this point," Janiak said, "I don't know if anyone can predict anything anymore."