September Sales May Foreshadow Holidays

By RACHEL DODES Retailers and analysts will be closely watching September sales reports due Thursday from key store chains for any sign they may need to adjust their already-gloomy holiday forecasts. Two analyst reports predict that Christmas-season sales will be flat with last year's dismal results while a third projects they will fall 1%. Stores have been slashing inventories in hopes they can avoid profit-sapping price cuts. Retailers also are planning plenty of bargains to lure thrifty holiday shoppers. Wal-Mart Stores Inc. says it will offer about 100 toys priced at $10 -- compared with just 10 such toys last year. Consumers are still "under a lot of pressure," said Wal-Mart's chief executive, Mike Duke. For consumers, "it's a badge of honor to not spend as much as they used to," Linda Heasley, CEO of specialty retailer The Limited, said at a retail conference in New York last week. Analysts are looking to the September sales figures for stores open a least a year -- a key measure of retailers' health and consumer spending -- for clues about Christmas. These results are predicted to fall 1% to 2% compared to September 2008. That would be a harbinger of a season filled with bargain hunting and last-minute gift shopping. The projected September decline is particularly worrisome because a late Labor Day and later school-start dates helped boost the month's sales, and a decline in September sales last year makes year-ago comparisons easier. The numbers will be reported Thursday by about 30 retailers, including Macy's Inc., Target Corp. and Gap Inc., but exclude Wal-Mart Stores Inc. and Best Buy Co. because they decline to report monthly figures. The International Council of Shopping Centers is forecasting a 2% decline in same-store sales for September compared with a year ago. Market research firm Retail Metrics' same-store sales index is expected to be down 1% compared with September 2008, in which sales fell 0.1%. Thomson Reuters is anticipating a 1.2% average decline in September verses a year ago for its index of 30 retailers, compared with a 0.8% decline a year ago. The expected declines will follow reports last week that the U.S. jobless rate hit a 26-year high of 9.8% and that car sales fell 23% last month following the end of the government's "cash for clunkers" incentive program, underscoring that a consumer-spending rebound could be a long time coming. "'Recovery' doesn't mean that you recover," said Mike Niemira, chief economist for the ICSC shopping-center trade group. "It just means you turn the corner." For the holiday season, Deloitte Research and Retail Forward both are forecasting sales will be flat compared with last year, when sales for November and December combined slipped 2.8% to $447.5 billion, according to the National Retail Federation, which will release its own holiday-sales estimate Tuesday. Archstone Consulting is slightly less optimistic, with the Stamford, Conn., firm predicting holiday sales will fall 1% this year. That would be the first consecutive yearly sales decline in at least 40 years, since the government began collecting sales data. "There's not one reason to support sales growth this season," said Todd Lavieri, chief executive of Archstone. The biggest challenge for stores entering the season is getting inventories in line with demand. Retailers are slashing inventories as much as 23% in a bid to preserve profit margins, according to a study by AlixPartners LLP. In a recent survey of retail finance chiefs by BDO Seidman LLP, 60% said having too much inventory will pose a greater risk to holiday sales than having too little. Best Buy CEO Brian Dunn said last week that his chain has seen increased demand for electronics in recent months and is adjusting inventory and labor plans as it heads into the holidays accordingly. Still, Best Buy is emphasizing competitive pricing in its marketing, not just on lower-priced electronics such as $300 netbooks but on more expensive TVs and computers. Some demand is returning to the toy category, Toys 'R' Us CEO Gerald Storch said, pointing to the early strong sales of Zhu Zhu Pet Hamsters, $8-$10 battery-operated rodents embedded with a smart chip that makes them behave differently depending on which room of their $19.99 hamster habitat they are in. Gerrick Johnson, a toy analyst at BMO Capital Markets, predicts that toy sales will fall 1% this Christmas, compared with a 5% slide last year. Full-price specialty retailers and department stores will likely continue to struggle. Same-store sales for the department store category have been negative for 21 of the past 22 months, according to Thomson Reuters. Off-price chains, which sell department-store overstock, are projected to be among the strongest performers in September. "If things ease up just slightly in the consumer's pocketbook, that could be very meaningful for us" in terms of holiday sales, said Sherry Lang, senior vice president of investor relations for TJX Cos., which includes off-price retailers T.J. Maxx, Marshalls and HomeGoods. For Michelle Christensen the recession means more shopping at retailers like T.J. Maxx, and fewer visits to Nordstrom. Last month, the 29-year-old sales manager bought two pairs of sunglasses at T.J. Maxx in Chicago. Still, she threw in an orange purse for $40. "I don't need an orange purse. It's totally impulse," says Ms. Christensen. —Elizabeth Holmes, Ann Zimmerman and Miguel Bustillo contributed to this article. Write to Rachel Dodes at rachel.dodes@wsj.com