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Retail Sales Recover in October, but Rising Inventories a Concern

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Helped by a surge in business at apparel specialty stores, total U.S. retail sales grew 3.6% on a 12-month smoothed basis, more than September’s revised 3.4% increase, according to just-released data from the Department of Commerce. Strong demand for automobiles is still a big factor: taking car sales out of the mix, retail sales increased by only 2.7%.

Total retail inventory rose by 5.8% in September (the most recent month for which this measure is available),  more than August’s 4.8% increase. Rising retail inventories are a concern for many industry analysts, because a glut of merchandise in stores may result in an exceptionally promotional season with less-than-hoped-for gross margins.

The department, chain and discount stores sector, which combines traditional department stores like Macy’s and Dillard’s with national chains Sears, Kohl’s and JCPenney and discounters like Walmart, Target and Kmart, suffered its nineteenth straight month of decline. Seasonally-adjusted sales, though better than September’s 5% plunged, dropped 3.3% on a 12-month smoothed basis in October. Big store inventory jumped 2% in September, up from a flat August, driving the inventory-to-sales ratio up by almost 30 basis points.

Apparel specialty store sales rose by 3.3%, their biggest monthly increase in four months as this channel, which includes chains like Gap, Men’s Wearhouse, Chico’s, and Talbots with small chains and independent boutiques, continued to erode department and discount store market share. Specialty store inventories rose by 1.3%, and their inventory-to-sales ratio rose slightly from the prior month.

Sales at the combined department, chain, discount and apparel specialty retail sectors, a traditionally reliable barometer of total apparel sales, edged up by .5% on a 12-month smoothed basis. September inventories for the combined sectors advanced 1.6%, driving inventory-to-sales ratio up to 2.25%.

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