Shoppers held back in July; sales dropped

NEW YORK --- Shoppers remained tight-fisted in July, raising concern about the back-to-school and holiday shopping seasons and for the broader economic recovery.

The big worry is that frugal parents will focus on outfitting children this fall with just necessities like notebooks and jeans. And fear is bubbling up that parents might consider any extra splurges early Christmas gifts.

The persistent pullback despite signs of a stabilizing economy could stall the overall recovery as consumers account for 70 percent of all economic activity.

"The consumer is stressed and depressed," said Ken Perkins, the president of retail consulting firm Retail Metrics. "Back-to-school shopping season is going to be very late."

Worries about job security, retirement accounts and home values have made consumers focus on necessities such as food. But stores are also grappling with a newly adopted frugality as consumers -- even those that have jobs and feel secure about their assets -- learn how to save and stick to a budget.

Michael Dart, a retail strategist and leader of private equity practice for consulting firm Kurt Salmon Associates, believes that based on what he's been hearing from consumers, some of those purchases may even double up as Christmas gifts as shoppers remain tight-fisted.

"Shoppers are becoming much more practical," Mr. Dart said.

The bargain-hunting played out again in the retailers' reports, with mall-based apparel stores faring the worst. Among the disappointments were Macy's Inc. and teen retailers Abercrombie & Fitch Co. and Wet Seal Inc.

The few bright spots were apparel discounters like Ross Stores Inc. and TJX Cos., operator of the T.J. Maxx and Marshalls chains, both of which reported sales gains that well exceeded Wall Street estimates.

A number of special factors also depressed July sales. Lean inventories left fewer clearance options for bargain hunters. And NPD Group Inc. chief retail industry analyst Marshal Cohen fears that lean back-to-school inventories, particularly at department stores, could stall sales this fall.

The shift of sales-tax holidays from July to August in most of the 14 states that have them because of a late Labor Day weekend also stole momentum from July.

A monthly compilation of more than 50 retailers' results by The International Council of Shopping Centers and Goldman Sachs showed overall same-store sales fell 5 percent in July compared with a year ago.