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September Retail Sales Gloomy; A Bad Sign for Holiday Shopping Season

An ailing retail industry had looked forward to the back-to-school shopping season for a much needed boost in sales, but the numbers just released are a deflating reminder of a still hurting economy.

According to the Thomson Reuters same-store sales index that assessed nine major retailers, the group reported a glum 0.4% rise in sales, especially disappointing against the industry wide expectation of 3.1% growth.

Most retailers won’t release these figures but the ones that did posted laggard same-store sales. For example, Gap Inc., reported a 3 percent drop in same-store sales, well below their anticipation of 1.6% of growth. Banana Republic suffered even more, its same-store sales dipping 5 percent, against the hopeful forecast of 1.6% growth.

Speaking to the Wall Street Journal, Gap chairman Glenn Murphy said, “While September proved to be somewhat challenging, we remain steadfast in our commitment to deliver on our full-year goal.”

Also speaking to the Wall Street Journal, Michael Niemira, chief economist of the International Council of Shopping Centers, said, “The consumer is still buying but it’s still the same story: the high end if holding up better than the lower end, where shoppers are more affected by different factors.”

There were a litany of factors that contributed to the depressed sales statistics. All the stores were hurt by unusually weak store traffic for a normally brisk shopping season and gathering competition, especially for increasingly influential teen consumers. But the most debilitating source of the retail slowdown is blanket consumer wariness; shoppers remain frugal as the global economy’s near-term prospects are stubbornly uncertain.

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According to the US Conference Board, consumer confidence plummeted in response to persistent unemployment and concerns regarding the ultimate impact of a government shutdown.

And the deep concern among industry experts is that September’s floundering is a dark portent for the crucially important holiday shipping season. And some of those concerns are based on macroeconomic factors completely beyond the control of any retail strategy.

For example, consumers have noticed that currently low interests rates have been steadily rising over the last few months and, in anticipating of further increases, are focusing their attention on larger purchases that would require a loan. Erich Patten, a manager at Cutler Investment Group LLC, observed, “Consumers recognize that financed purchases will be more expensive with rising rates, and thus are prioritizing them in the current economy. Demand for soft goods will return as interest rates rise and purchasing patterns normalize.”

At least for the short term, and this includes the important holiday shopping season, consumers are expected to to spend more on housing, automobiles and major appliances. According to poll issued Ipsos Research, 26 percent of US shoppers plan to spend considerably less on clothing this holiday season that typical and a meager 12 percent intend to spend  more.

Contributing to consumer wariness are increases in payroll taxes and the rising cost of gas. Alison Paul, vice chairman at Deloitte LLP, explains, “You can’t get out of paying your taxes and you have to have gas to go to work and school. Those are real numbers that really do impact real Americans, and I think that’s where other discretionary spend takes a hit.”

While this trend bodes well for home improvement chains that rely upon appliance sales, like Home Depot and Lowe’s, it spells trouble for apparel retailers like Macy’s, Wal-Mart, Kohl’s and Target, all of whom have experienced chronic underperformance.

Shawn Kravetz, president of Esplanade Capital, said, “We’re not saying run away from apparel. We’re saying you have to make sure it really looks good on you. Investors just have to be choosier than ever because it has gotten very messy and very challenging very quickly.”

And it’s not just consumers who are increasingly cautious. More and more hedge funds are moving out of the apparel retail sector in search of firmer ground, mostly healthcare, technology and telecoms.

Patty Edwards, chief investment officer of Trutina Financial, placed some of the blame on the fashion industry itself. “The problem now is that there is no fashion, and if there is no newness, clothing becomes a commodity. Beyond a select few, I’d think twice about getting into apparel and retail stocks.”

Still, the National Retail Federation has estimated that the holiday shopping season, ranging from November to December, will increase 3.9% from last year’s performance.