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Originally published June 30, 2009 at 12:00 AM | Page modified June 30, 2009 at 11:46 AM

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Summer looks like a washout for some retailers

As consumers get ready to celebrate July Fourth, many merchants already have dismissed summer as a washout and have been slashing prices. Deep discounting so early in the season is great news for bargain hunters, but it's a worrisome sign that shows a further weakening in retail sales since the end of May.

The Associated Press

NEW YORK — As consumers get ready to celebrate July Fourth, many merchants already have dismissed summer as a washout.

Macy's flagship store has racks of summer tops, swimwear and dresses marked down as much as 50 percent, while luxury retailer Bergdorf Goodman is slashing prices on designer goods by as much as 70 percent.

Meanwhile, piles of clothing as well as barbecue grills, tents and gardening tools are bypassing stores and heading straight to liquidators as merchants try to conserve their cash. Such deep discounting so early in the season is great news for bargain hunters, but it's a worrisome sign that shows a further weakening in retail sales since the end of May.

Consumers' confidence in the economy, which had surged in April and May, is projected to be virtually unchanged for June when the Conference Board releases figures today. And major retailers will release June sales results next week.

While unusually rainy weather across much of the country has dampened business, some analysts wonder whether shoppers are waking up to the harsh reality that the economy won't be getting any better soon — and consumer spending makes up 70 percent of economic activity.

That doesn't bode well for merchants, which need to get rid of summer inventory quickly to make room for fall goods that start to arrive next month.

Pam MacWilliams, a tourist in New York City from Oshkosh, Wis., who recently was planning to scour for bargains at H&M's midtown Manhattan location with her two girls, said she's becoming less optimistic about a quick economic recovery.

"I thought that the economy would turn faster," said MacWilliams. "I had high expectations. Now, I want to save more."

MacWilliams said she's spent only $200 this month on clothes for her family, compared with about $600 a year ago.

Employers are still cutting jobs — although at a slower rate — and home prices are still falling, and Americans have seen a three-month stock-market rally stall.

Consumers' confidence in the economy has been rebounding since February, fueled in part by the rise in the stock market. But that improved mood hadn't translated into much relief for merchants because confidence levels are still well below the 100 reading that's considered healthy.

The concern is that shoppers' mood could actually level off in coming months. The Conference Board today is slated to release confidence figures for June that economists estimate at 55, which would be essentially even with May's 54.9.

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Last Friday's government economic reports weren't comforting to merchants, showing that households used most of their government stimulus payments to boost savings to the highest level in more than 15 years in May, instead of splurging at the mall.

"There was a lot of hope with the surge in confidence," said Dennis Jacobe, Gallup's chief economist.

He added that consumers were convinced that the second half would be better but he noted, "you can live on that hope for only so long."

According to a Gallup Poll survey of 1,000 consumers taken June 15-21, confidence has faltered as stocks have stumbled and gas prices have risen. He added that he's seen a deterioration in June sales from May.

Michael Niemira, chief economist at the International Council of Shopping Centers, estimated that June's same-stores sales have so far registered a 6 percent drop, worse than the projected 5 percent decline and May's 4.6 percent decrease. The figures exclude results from Wal-Mart, which no longer releases monthly numbers. Same-store sales, or sales at stores open at least a year, are considered a key measure of retailers' health.

Niemira says he isn't reducing his forecast yet because he believes the true test will come when the weather warms up. That finally started to happen this past weekend.

Stifel Nicolaus analyst Richard Jaffe predicts even deeper discounting. He estimated that 30 percent of the nation's apparel sales come from the Northeast, hit hard by persistent rain. New York City had 21 days of rain in the first 28 days of June, the highest number in at least 50 years.

Bill Angrick, CEO of Liquidity Services, which auctions surplus goods to dollar stores and small resellers, said that in the past stores had usually held out hope for procrastinators and didn't unload summer items until early August. But "there is no normal in this economic cycle," so merchants are cutting their losses.

Patrick Byrne, CEO of online merchant Overstock.com, reports up to a 70 percent increase in goods it's received from retailers and suppliers compared with a year ago, particularly in apparel and accessories.

"We're getting a lot of calls over the last two weeks" from stores wanting to dump inventory, Byrne said.

Copyright © 2009 The Seattle Times Company

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