October sales offer relief to merchants

By ANNE D'INNOCENZIO

The Associated Press

NEW YORK — Consumers, looking to outfit themselves for cooler weather and enticed by an improving economy, spent a little more in October, handing the retail industry its second consecutive monthly sales gain after more than a year of declines.

October results released Thursday showed that shoppers still were not splurging, restrained by tight credit and a weak job market. But the improving figures and tone of the reports all pointed to sales momentum as the industry heads into the holiday shopping season.

Affluent shoppers, who had been tight with their purse strings since the financial meltdown last year, spent more for designer duds.

Among the bright spots were Costco Wholesale Corp.; TJX Cos., which operates T.J. Maxx and Marshalls; and Gap Inc., all of which reported solid gains for October. But the biggest surprise were improving sales at luxury retailers like Saks Inc., and Nordstrom Inc.

"Improved macro conditions are leading shoppers to spend more on discretionary purchases," said Ken Perkins, president of retail research firm Retail Metrics."This should bode well for Christmas."

Overall, sales at stores open at least a year rose 2.1 percent, according to a International Council of Shopping Centers-Goldman Sachs tally, compared with a 4.2 percent drop in October 2008.

The October results marked the industry's strongest performance since July 2008 and beat estimates for a 1 percent gain. October's gain followed a surprising 0.6 percent increase in September.

October's reading excludes results from Wal-Mart Stores Inc., the world's largest retailer, which stopped issuing monthly sales reports earlier this year.

Sales at stores open at least a year are considered a key indicator of a retailer's health because they exclude the effects of store expansion.

Business was helped by a number of factors. Cooler weather helped boost sales of plaid shirts, leggings and boots. And early holiday discounts also may have drawn shoppers to get a head start on Christmas buying, Perkins said. Those with money are now becoming a little more willing to spend it, soothed by improving signs in housing and the stock market.

But retail sales figures are mainly starting to look better because they are being compared with the free fall in spending a year ago.

A number of stores, including Gap and teen merchant Aeoropostale Inc., raised their profit outlooks. They have slashed inventories to respond to reduced demand. But BMO Capital Markets analyst John Morris said many stores have reached a point where they have "gotten too good."

"They planned so conservatively that they ran out of sales goods," hurting sales at the end of the month, Morris said.

The big question is whether shoppers will be motivated to buy holiday goods at full price knowing that if they wait too long, that coveted item might be sold out, or if they will hang back and wait for discounts.

Clearly, there's plenty of concern about the fragility of American consumers who continue to grapple with tight credit and weak employment. More than 6 million additional people were jobless in September 2009 than in September 2008.

The Labor Department reported Thursday that the number of newly laid-off workers filing claims for unemployment benefits last week fell to the lowest level in 10 months, evidence that job cuts are easing. But employers are reluctant to hire, and economists expect unemployment to tick up to 9.9 percent when October's figure is reported Friday.

As a result, consumer confidence has been choppy, rising above its February low but still far from levels that would mean the economy is on solid footing.

Discounters and wholesale club operators continue to benefit as shoppers still want low prices and necessities.

Costco said Thursday that sales at stores open at least a year climbed 5 percent in October, helped by strengthening foreign currencies. Analysts surveyed by Thomson Reuters had expected a 4.7 percent gain.

Target Corp. posted a 0.2 percent decline in October; analysts had expected results to be unchanged from a year ago. The retailer said that sales of necessities like health care products rose, but electronics and sporting goods sales were weaker.

Among department stores, Macy's Inc. posted a 0.8 percent decline. J.C. Penney Co. had a 4.5 percent sales drop, worse than the 2.3 percent decline that analysts anticipated. The company said that women's apparel and shoes were top performers.

Nordstrom enjoyed a 6.5 percent gain, and Saks posted a 0.7 percent sales gain. Saks described business as still "weak," but several categories like women's designer sportswear, outerwear and jewelry all showed relative strength, along with its online and Off 5th businesses.

____

AP Writer Christopher S. Rugaber contributed to this report in Washington.

___

November 05, 2009 01:46 PM EST

Copyright 2009, The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.