By and  on August 4, 2011

Get ready for a bumpy ride.

Worries that the global economy is faltering and reports of slower same-store sales growth in July pushed retail stocks to their worst drop since January 2009 and sent the Dow Jones Industrial Average swooning by more than 500 points Thursday.

And no sector is safe. Even the high-flying luxury sector — where Saks Inc.’s comparable-store sales gained 15.6 percent last month, Neiman Marcus Inc.’s rose 7.7 percent and Nordstrom Inc.’s gained 6.6 percent — might take a hit as well-heeled shoppers check their brokerage accounts.

In all, it was a troubling day and reminiscent of the financial crisis of 2008 with its wild swings in trading. The S&P Retail Index fell 4.5 percent, or 23.04 points, to 492.68; and the Dow dropped 4.3 percent, or 512.76 points, to 11,383.68. Nor was the black day restricted to the U.S.: The CAC 40 lost 3.9 percent in Paris and the FTSE 100 dropped 3.2 percent in London.

Ken Goldstein, an economist at The Conference Board, pinned the sharp downward pressure on a host of investor fears surrounding today’s key update on the U.S. employment picture in July, the impact of Washington’s new deficit reduction package and the fiscal woes of Spain and Italy.

“Beyond all of that is the sobering idea that austerity doesn’t help growth,” Goldstein said, referring to government efforts to trim spending.

Almost without exception retail and fashion stocks fell Thursday.

Among the hardest hit retailers was Aéropostale Inc., which warned that its second-quarter bottom line would come in well below expectations and as a result saw its stock fall 24.2 percent to $12.53. Other decliners included Gap Inc., down 11.6 percent to $16.98; Nordstrom Inc., 9.6 percent to $43.15; Kohl’s Corp., 8 percent to $47.67; Saks Inc., 6.4 percent to $9.47; Macy’s Inc., 6.1 percent to $26.13; J.C. Penney Co. Inc., 5.8 percent to $28.67, and Target Corp., 3.9 percent to $76.47.

The stock declines might be a bad omen of sorts for the back-to-school and fall selling seasons.

Retail experts predicted that the combination of high gas prices, currency fluctuations, high unemployment and rising apparel prices could lead to a fiercely competitive retail environment marked by unplanned promotions.

“If the consumer falls into a funk, I think you’re going to see unplanned promotions to drive traffic,” said Citi broadlines analyst Deborah Weinswig. “Continued volatility in the market could depress demand for back-to-school and holiday — absolutely.”

Weinswig said the luxury sector, which has been fairly insulated from cost inflation, could also slow should stocks continue to fluctuate.

In order to drum up demand in the last few months, retailers have dangled promotions and deals in front of consumers, but they might have to do even more to entice shoppers this fall if current trends persist.

“If the slowdown continues into August, this will cause even more concern and will likely result in deeper promotions,” said Joel Bines, managing director in Alix Partners’ global retail practice. “The universal feeling out there is that it’s really bad.”

On the surface, Thursday’s sales results were relatively rosy. Comps rose by 4.6 percent overall, according to the International Council of Shopping Centers.

“July sales results came in better than expected for a seventh-consecutive month but clearly decelerated from the robust 7.2 percent gain racked up in June,” said Ken Perkins, president of Retail Metrics.

July marked the 23rd consecutive month of comp gains, he said.

Consumers took advantage of summer clearance early in July, but they held back toward the end of the month as the deal to cut the deficit and raise the debt ceiling dragged on and high gas prices lessened the willingness to spend.

The Gap Inc., which posted a 5 percent decline in comps and decreases in its four business units, is already feeling that pullback in spending. The Gap brand’s comps in North America fell 6 percent, while Banana Republic was off 4 percent and Old Navy slid 3 percent.

Morgan Stanley specialty retail analyst Kimberly Greenberger said Gap’s “merchandise is worse than it was in the past” and expects the chain to go into clearance mode, as it is already overinventoried.

Greenberger said the fashions at the firm’s Old Navy division looked “terrific,” but the brand’s core customer is “really suffering” and that the Banana Republic chain needs to add some fashion excitement to justify its higher prices.

Kohl’s Corp. also had a tough month, with a 4.6 percent comp decline that analysts pinned on a lack of fashion newness.

Gap, Kohl’s and Destination Maternity Corp., with a 6.3 percent decline, posted the largest comp decreases for the month.

Generally, upscale retailers continued to thrive while midtier chains held their own and budget-minded concepts gained ground.

“Weak got weaker and strong took share,” said Adrienne Tennant, an analyst at Janney Capital Markets.

“Some of these retailers will really have to rethink their relevance,” said Laura Gurski, head of the retail practice at A.T. Kearney. “Retail is all about being relevant to your core consumer group. If you’ve lost that customer, you either move with them or you reinvent yourself.”

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