October '03's Heat and Fires Slow Retail Sales

Retail sales continued on the path to recovery in October but at a slower pace than during the three previous months. Still, signs pointed to a season of healthy holiday shopping.

Retail sales grew by 3.2 percent in October, according to the Bank of Tokyo Mitsubishi’s tally of 74 chain stores. August had boasted an increase of 5.1 percent, while September had showed growth of 5.9 percent, the largest gain in 18 months.

Unseasonably warm weather in much of the country crimped demand for seasonal items, affecting retailers such as Sears, Roebuck and Co., whose same-store sales fell by 2.7 percent. Southern California’s wildfires and transit strike affected sales at Federated Department Stores Inc., the company reported. Federated also reported a loss, with same-store sales down 2 percent.

Overall, sales at apparel stores declined 1.2 percent from sales in October 2002, following a solid gain of 7.9 percent in September. However, the Bank of Tokyo Mitsubishi expects retail sales for November and December will be 4 percent to 5 percent higher than sales during the same period last year.

A drop in unemployment also bodes well for the upcoming holiday shopping season. The U.S. unemployment rate dropped to 6 percent in October as payrolls grew by 126,000 jobs, according to the U.S. Department of Labor. Unemployment has slowed recovery of the nation’s economy, which nevertheless grew at a robust 7.2 percent in the third quarter.

President Bush’s tax cuts have had an even bigger impact, said Al Frank, partner in charge of the retail practice at Deloitte & Touche.

“People are feeling like their jobs are not at risk and that they have a little more money in their pocket,” said Frank. “They’re tired of feeling bad, and the way they’re going to pump themselves up is by buying presents for the holidays.”

The retail apparel sector continued to be split, with discounters and high-end businesses squeezing dollars from besieged midtier retailers.

Target Corp. and Wal-Mart Stores Inc. posted respective sales gains of 7.9 percent and 11.8 percent over last year. Sales for off-pricer Ross Stores Inc. grew by 8 percent, while sales for The TJX Companies Inc. grew by 7 percent over October 2002.

High-end retailer Saks Inc. posted an October sales gain of 4.3 percent, while Neiman Marcus Group Inc. gained 10.4 percent.

Specialty stores continued to reap the highest rewards. Chico’s posted a gain of 57.6 percent over last year.

Southern California’s great success stories, City of Industry–based Hot Topic Inc. and Anaheim-based Pacific Sunwear of California Inc., posted sales gains of 32 percent and 14.7 percent, respectively.

There were some specialty store losers. Dallas-based Gadzooks Inc. continued its sales decline after adjusting to its all-women’s format, with October sales down 29.2 percent over last year, and troubled Foothill Ranch, Calif.–based The Wet Seal Inc. saw a samestore sales decline of 9.7 percent. —Christian M. Chensvol