Tight Consumer Spending Weighs on June Sales

Sales at department stores fell a seasonally adjusted 1.3 percent in June compared with May, and specialty store receipts were flat.

WASHINGTON — Retail apparel sales showed more weakness in June as consumers kept a lid on discretionary spending and stores marked down prices.

This story first appeared in the July 15, 2009 issue of WWD.  Subscribe Today.

Sales at department stores fell a seasonally adjusted 1.3 percent in June compared with May, and specialty store receipts were flat, the Commerce Department said Tuesday. Compared with a year earlier, department store sales fell 9.4 percent to $15.44 billion and specialty store sales declined 6.2 percent to $17.36 billion.

“There was extreme discounting going on in clothing, apparel and accessories [in June],” said Richard Yamarone, director of economic research at Argus Research Corp. “There was not an apparel or shoe store that did not have a sale sign in its window.”

The outlook for retailers is unlikely to improve in the short term, Yamarone said. Second-quarter results will be released soon and retailers face a difficult comparison to the same period a year ago, when government stimulus checks inflated results for many stores.

In year-over-year comparisons, June represents the ninth straight month of declining sales, and consumers seem to be more willing to spend on necessary items like personal care than discretionary items like apparel and home furnishings, said Bob Duffy, leader of the retail industry practice for global advisory firm FTI Consulting.

On a positive note, he said, year-over-year comparisons should ease in the second half when they come up against dismal sales results from last year.

“My prediction for the balance of the summer is that, barring any catastrophe, we’re going to gradually see some improvement,” Duffy said.

However, problems like the potential fallout from the financial crisis at CIT Group Inc., which provides significant levels of funding to the apparel sector, could change the game, he said.

Economists agreed a recovery in retail sales levels is a crucial part of any larger economic rebound for the U.S. All retail and food service providers reported an increase in June sales of 0.6 percent compared with May. The increase was larger than expected, but was driven primarily by increased gas prices and sales of motor vehicle parts, economists said.

“Sales in most other channels were mostly lackluster,” said Patrick Newport, U.S. economist for IHS Global Insight.

Compared with a year earlier, overall retail sales dropped 9 percent to $342.1 billion. Retail sales “fell off a cliff” in the second half of 2008, and results have been flat since, Newport said.

The continued pressures of rising unemployment and job insecurity combined with losses in financial and real estate assets have discouraged spending on discretionary items, he said.