August Retail Sales Beat Expectations Despite heat waves, penny-pinching parents and a weak job market, retailers managed to post better-than-expected sales in August, helped by a sharper focus on inventories and promotions.

A tally of major retailers by Thomson Reuters found comparable sales (for stores open at least a year) rose 3.3% in August, better than the 2.5% it had forecast. Every segment beat the forecast, except for drugstores, which were down 1% instead of rising 1.3% as expected.

Observers had been predicting at best a mixed bag on the retail front, given that hiring is still stagnant and August's sales would be compared to last year's back-to-school period, when shoppers were beginning to shake off the recession's hold on their spending.

Keeping the Right Stuff in Stores

"What's going here is that the retailers have gotten better at forecasting how their inventories should be and how the consumers are going to behave," says Laura Gurski, a partner in the retail practice at consulting firm A.T. Kearney. "They've just begun to do a better job at understanding what the expectations would be."

She notes that many merchants are better stocked with current-season items, as shoppers are now buying more wear-now apparel and merchandise, and putting off other purchases to wait for sales. Stores have done a good job of clearing out summer merchandise, she says.

Many retailers, most notably Macy's (M), have moved more control over merchandising to the local level, which allows stores to stock items that are more appropriate for their specific market, such as more lightweight clothes in warm-weather locations. The parent of Bloomingdale's credited the strategy with helping it post a 4.3% sales increase in August.

Savings Dipped, Which Means Consumers Spent

Thomson Reuters noted that most retailers beat their sales forecasts, suggesting that back-to-school sales boosted totals. J.C. Penney (JCP), which posted a 2.3% rise in sales, reported double-digit percentage increases in sales of backpacks, a key school accessory.

The strong numbers were unexpected, considering how glum many retailers' forecasts had been during the recent earnings season. Sales-tax holidays probably helped, along with more discounts on fall merchandise, wrote Brian Sozzi, retail analyst at Wall Street Strategies in a note to investors.

"The dip in the savings rate to under 6% in August suggested that consumers spent somewhere, and that somewhere appears to have been the malls and discount chains," wrote Sozzi.

Pinching Pennies, Waiting for Sales

However, transaction sizes suggested that shoppers are still pinching pennies, at both the high and low end. Saks (SKS), which reported a modest 1% increase, said it was hurt by a shortage of clearance inventory, while Target (TGT) reported a 1.8% increase that it credited to more transaction volume offsetting smaller average receipts. Kohl's (KSS), which showed a 4.5% increase in sales, said it managed growth because a low-double-digit percentage improvement in the number of transactions per store offset lower averages in items and price per sale.

"The customer is willing to sit the dance out" if there are no discounts, said Sozzi. He pointed out that sales were clustered in the weeks when several states held sales-tax holidays and stores ratcheted up discounts.

Looking ahead, Sozzi warned that Hurricane Earl's landfall in the mid-Atlantic region could hurt sales there in September. Gurski also notes that the storm is hitting in time for Labor Day sales. She adds that many school districts along the East Coast start classes after the holiday, which means many parents still have a lot of back-to-school shopping left to do as the storm bears down.

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Robert & Lisa

No one that works for the government produces products or services which improves our standard of living. Only the private sector does that. The bigger the government, the lower standard of living for all. Government is a neccessary evil, so keep it as small as possible.

September 02 2010 at 7:26 PM Report abuse rate up rate down Reply
Sonja Dunbar

Heck, if you don't wait for sales you must be loaded, because EVERYTHING goes on sale, so why pay full price?? And, the best of all sales at the major dept. stores is when they have a large percentage off and then tack on another 30,40, or 50% off that. I get great merchandise, cheaper and better quality than if I shopped at Walmart or Target. And, they do this in plenty of time to still be able to wear the clothes in season. It's crazy to pay regular price for anything.

September 02 2010 at 5:03 PM Report abuse +1 rate up rate down Reply