Retailers report sales sluggish on fall items

NEW YORK -- With disappointing September sales behind them, the nation's retailers are now left with a big mess: piles of cashmere sweaters, coats and other heavy fall items that have been languishing on their shelves because of the steamy weather.

For many merchants who need to quickly mark down fall leftovers to make room for holiday goods, the bloated inventories are a big profit problem.

For shoppers, they mean generous discounts.

On Thursday, a string of retailers including Target, J.C. Penney, Limited Brands and Nordstrom cut their earnings outlooks. Wal-Mart Stores was almost alone in raising its third-quarter profit projection; but that wasn't because of robust sales. It was because of expense-cutting.

"The question becomes who has too much inventory," said John Morris, managing director of Wachovia Securities, "And how does that impact holiday sales?"

The inventory problem, he said, has forced some retailers to try to cut holiday orders. It may be too late. "The discounting is starting to spread," he said.

Morris estimates that discounting was up 5 percent in September compared to a year ago at the apparel chains he tracks.

Muggy, hot weather discouraged shoppers from buying fall apparel, but the stores' sales reports also showed consumers continue to be weighed down by higher energy prices, a slumping housing market and tightening credit.

"There is this growing anxiety out there," said Frank Badillo, vice president and senior retail economist at Retail Forward, a retail consulting company. "And it's not just focused on the low-income households. I think you are starting to see it creep into the upmarket households."