The banks got their $700 billion bailout from Washington Friday, but retailers got more bad economic news to dampen their holiday spirits.
The U.S. shed a seasonally adjusted 159,000 jobs in September, which was the largest decline in more than five years and included the loss of 41,000 retail positions. That marks nine straight months of shrinking employment for a total of 760,000 jobs lost so far this year and another serious blow to consumer sentiment. A surge of new jobs at specialty stores, however, pushed their payrolls higher than those of department stores for the first time on record.
The Standard & Poor’s Retail Index finished the day down 2.8 percent, or 9.50 points, to 331.83. Retail stocks fell a total of 11.7 percent last week. The broader market fared somewhat better, with the Dow Jones Industrial Average off 1.5 percent, or 157.47 points, to 10,325.38 on Friday, making for a fall of 7.3 percent for the week.
The commotion on Wall Street and the broad economic weakness has prompted many to reevaluate the prospects for retailers in the fourth quarter, even though chains have spent much of the year readying themselves for some tough sledding.
On Friday, Mark Montagna, equity analyst at C.L. King & Associates Inc., reduced his earnings projections on Gap Inc., Limited Brands Inc., The TJX Cos. Inc., Ross Stores Inc., Stein Mart Inc., Coldwater Creek Inc. and The Dress Barn Inc.
“The impact of the weak macroenvironment, record levels of gift cards and the wait-to-the-last-minute shopping strategy of consumers will likely cause retailers to take steeper-than-planned pre-Christmas markdowns, despite large planned inventory reductions,” Montagna said. “While retailers did a much better job with inventory planning for [the fourth quarter], we do not believe such plans taken months ago contemplated such a dire economic situation as we are apparently experiencing.”
The increasing appetite for gift cards could make for lighter traffic in stores, since people on the hunt for cards are destination shoppers and not holiday browsers, Montagna said.
Also on Friday, Amy Noblin of Pali Research downgraded Urban Outfitters Inc. to “sell” from “neutral” based on “our belief the stock is not pricing in the increasing risk of a broadening consumer slowdown.”
Among the top department store decliners for the day were Dillard’s Inc., down 8.9 percent to $11.06; Macy’s Inc., 6.3 percent to $15.19, and Saks Inc., 6 percent to $8.05. Those specialty stores losing market capitalization included Urban Outfitters, down 8.4 percent to $26.55; American Eagle Outfitters Inc., 8.3 percent to $13.63; Aéropostale Inc., 6.5 percent to $27.85, and Bebe Stores Inc., 5.3 percent to $8.59. Apparel producers and brands losing ground included G-III Apparel Group Ltd., 6.6 percent to $15.58; Polo Ralph Lauren Corp., 5.5 percent to $57.99; Jones Apparel Group Inc., 4.6 percent to $16.13, and Phillips-Van Heusen, 3.6 percent to $34.07. (For a full list of major international retail and vendor stocks, see page 25.)
On a more positive note, when President Bush signed the bailout legislation into law Friday, he opened the fiscal floodgates to at least theoretically ease the flow of credit as banks are able to rid their balance sheets of toxic mortgage debt and return to more normal lending activities, whether to each other, corporations or consumers.
On the employment front, department stores took a beating, cutting payrolls by 10,800 jobs in September, according to a monthly Labor Department report.
It was the largest decline in the retail trade sector in September. Of the 276,000 jobs lost in retail since December 2007, a substantial portion of them, 60,300 positions, were at department stores.
For the first time since 1990, the earliest date for which records were available, the number of people employed by specialty stores, 1,500,900, was higher, by 600, than the employee count at department stores. Last month, apparel and accessories specialty stores added 2,600 positions.
“Call it the death of the department store,” said Richard Yamarone, director of economic research for Argus Research Corp.
Department store staff levels peaked in 2001 and have declined since then, while specialty stores have increased the size of their workforce, he said.
Industry mergers and the rise of Internet shopping have contributed to declining department store payrolls, Yamarone said.
The U.S. apparel manufacturing sector also continued to lose jobs. Apparel manufacturers trimmed head counts by 2,400, while textile mills that manufacture apparel fabric shed 1,300 positions. Textile product mills that make home furnishing fabrics expanded payrolls by 200 jobs.
The downward plunge in overall employment last month was fueled by steep job losses in the retail trade, construction and manufacturing segments. The unemployment rate was unchanged in September from the prior month at 6.1 percent.
“The employment report is just the latest in a series of indicators showing that the economy was deteriorating rapidly as the third quarter progressed,” said Nigel Gault, chief U.S. economist at Global Insight Inc.
“This was much worse than was expected, as the full weight of the banking crisis, the cost of imported oil and job losses to China bore down on manufacturing and the broader economy with unrelenting pressure,” said Peter Morici, professor at the University of Maryland School of Business and a former chief economist at the U.S. International Trade Commission.
A spate of recent economic indicators has painted a bleak outlook. In addition to the declining employment levels, consumer spending slumped, factory orders and shipments fell and real incomes have declined, according to a variety of economic reports in recent weeks. The added strain of the controversial financial bailout package legislators hashed out and uncertainty in the markets added to the pressures on the general economic picture.
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