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updated: 7/7/2011 3:07 PM

Discounts help US retailers post strong June sales

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  • A shopper leaves Costco in Mountain View, Calif. Retailers are reporting robust sales as deep discounts on summer merchandise pulled in shoppers in June. But the concern is that the momentum may not continue heading into the back-to-school shopping season when consumers are likely to find higher prices on everything from clothing to handbags.

      A shopper leaves Costco in Mountain View, Calif. Retailers are reporting robust sales as deep discounts on summer merchandise pulled in shoppers in June. But the concern is that the momentum may not continue heading into the back-to-school shopping season when consumers are likely to find higher prices on everything from clothing to handbags.
    Associated Press

 
Associated Press

NEW YORK -- Colossal discounts enticed consumers to shop like it was 1999 last month. But higher prices ahead could cause the party to end soon.

Warm weather and discounts of up to 80 percent on summer merchandise helped retailers deliver the best revenue gains since June 1999 in what's typically the second-biggest shopping month of the year. But pressure on stores to pass along higher costs for everything from clothing and handbags to food has raised concerns that the momentum may not continue heading into the busy back-to-school shopping season.

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Overall, revenue at major retailers rose 6.9 percent for June, according to the International Council of Shopping Centers' tally of 28 retailers' results.

"Promotions were the clear driver this month, and consumers took advantage of some outstanding deals," said Ken Perkins, president of research firm RetailMetrics LLC. "But that leaves a big question mark for July and the back-to-school season. Will shoppers be willing to spend full price?"

Selina Bierra, 32, says she would not. The teaching assistant bought discounted items at Macy's two weeks ago and a pair of white pants for $10 at Old Navy on Thursday. But she snubbed another pair priced at $19.99 because she thought it could be discounted more.

"Today, jobs aren't guaranteed," Bierra said. "My friend was telling me that her work was laying off people before the Fourth of July holiday."

Brian Sozzi, a Wall Street Strategies said many consumers, particularly at the lower-income levels, feel that way. He said June's performance is indicative of the "roller coaster" sales trend that has been prevalent this year.

"There continues to be more mixed reads on the state of the U.S. consumer than there are alcohols in a Long Island Iced Tea," Sozzi said. "The spending recovery is far from consistent."

The June gains were lopsided, with discounters and luxury brands benefiting the most and results for merchants serving the low- and middle-income shoppers lagging. The figures are based on revenue at stores opened at least a year, a measure considered a key indicator of a retailer's health.

Discounter Target Corp. and whole sale club chain Costco Wholesale Corp. were among the companies that posted June results that beat Wall Street estimates. Luxury retailers like Nordstrom Inc., Neiman Marcus and Saks Inc. also posted another month of stellar gains, as wealthy shoppers have gone back to spending.

At the same time, J.C. Penney, which targets the middle income shopper, registered a sales gain that came in below analysts' projections and released a disappointing profit outlook. Bon-Ton Stores Inc., another mid-brow chain, announced a decline.

And Fred's Inc. reported a decline for the month and now expects its second-quarter net income to land in the lower half of its forecast range. It said its low-income shoppers are having a harder time stretching their dollars to the next payday.

Fred's CEO Bruce Efird said in a statement that June started out well and traffic was strong throughout the month, but the average amount people spent declined during the second half of the month.

The "paycheck cycle," when financially stressed shoppers pull back in the days before they get their paycheck and then step up their spending when they get paid, was pronounced during the final weeks of June. But he said July 1 was the highest single day of sales so far this year.

"June sales reflected the volatility experienced with our customers' purchase patterns and demonstrated the broader decline in consumer sentiment that has been reported for the month," he added.

June is historically the second most important month on a retailers' sales calendar behind December. During the month, stores typically clear out summer merchandise to make room for fall goods. But this time, it took deeper discounts than usual to get shoppers to buy amid worries about the economy.

Teen retailer Aeropostale, for example, offered discounts of up to 80 percent, plus an extra 30 percent off on summer items, according to Dan de Grandpre, editor-in-chief of Dealnews.com. A year ago, Aeropostale offered up to 70 percent off, he said.

Still, the revenue results are welcomed news for retailers, which had been hurt in some previous months by consumers' hesitance to loosen their purse strings.

Most of the spring, shoppers, particularly in the low-to-middle income brackets, shrugged off buying discretionary items as gas prices neared $4 per gallon in late April and early May. Gas prices dropped almost 42 cents from a three-year high set earlier this year, and averaged $3.67 per gallon, according to AAA, Wright Express and Oil Price Information Service.

But analysts fear that retailers have not quite turned a corner heading into the back-to-school shopping season, a period that accounts for 16.1 percent of annual retailers' revenue, according to the International Council of Shopping Centers. After all, gas prices are still 35 percent higher than last year at this time.

Moreover, prices in the food aisle remain high and this fall, shoppers will be seeing the price tags of fashion and accessories rise as retailers try to offset higher labor costs in China and soaring prices of raw materials like cotton. Retailers, which had already raised prices on select items, are expected to expand those increases.

Additionally, shoppers' biggest concerns __ a weak job recovery and stagnant wages __ continue to weigh on their buying decisions. These worries sent consumer confidence to a seven-year low in June, according to the Conference Board's survey released last week.

In fact, consumer confidence has never been this low in the 24th month of a recovery, according to David A. Rosenberg, chief economist and investment strategist at the Toronto-based money management firm Gluskin Sheff. Historically at the two-year mark, confidence is at 94, not 58.5, which was recorded by The Conference Board's June survey.

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