By and  on October 15, 2010

Two government reports released Friday point to a weakening in demand for apparel, as retail sales fell and prices declined.

Clothing and accessory store sales dropped 0.2 percent in September compared with August to $18.1 billion and department store sales declined 0.1 percent to $15.5 billion, the U.S. Commerce Department said. General merchandise stores, a category that includes discounters and department stores, saw flat sales in September of $50.9 billion.

In yearly comparisons, specialty store sales were up 3.2 percent, but department store sales were off 0.8 percent. General merchandise stores saw a 2.6 increase in sales year-over-year.

Meanwhile, economic pressures drove retail apparel prices down a seasonally adjusted 0.6 percent in September, and decreased 1.2 percent compared with a year earlier, the Labor Department said in its Consumer Price Index.

Taken together, the two reports suggest “sluggishness, and perhaps early and deep markdowns,” said Charles McMillion, president and chief economist with MBG Information Services.

In the overall economy, retail sales eked out a 0.6 percent increase over a month earlier to $367.7 billion, slightly higher than expected and the third monthly increase in a row. Sales spiked 7.3 percent compared with September 2009, when the recession was in full swing.

“There’s no question that the industry is in a much better state than this time last year; however, consumers are still very reliant on sales and promotions,” said Matthew Shay, president and chief executive officer of the National Retail Federation.

The economy has not yet fully dug itself out of the hole created by the recession, with unemployment and underemployment rates still relatively high, and any gains in retail sales are likely to be “sluggish and hard-won,” said Sandy Kennedy, president of the Retail Industry Leaders Association.

Women’s apparel prices fell 1.4 percent compared with a month earlier and dropped 0.8 percent year-to-year. Prices for men’s apparel were down 0.3 percent in September and declined 0.2 percent in 12-month comparisons.

The overall CPI rose 0.1 percent in September compared with August and increased 1.1 percent compared with a year earlier. The so-called “core index,” which excludes the volatile food and energy sectors, was flat month-to-month and rose 0.8 percent in 12-month comparisons.

Consumers appear to be holding out and waiting for prices to come down before committing to purchases, said Kevin Regan, senior managing director and retail industry expert with FTI Consulting.

“We’re seeing signs of a gradual comeback, a gradual loosening up, but it’s still a cautionary environment because the economy is unsure of itself,” Regan said. “If you look at the consumer mood as reflected in consumer confidence measures, they’re still grim.”

Retail stocks did well Friday, but the broader market was slightly down.

The S&P Retail Index pushed up 1.5 percent, or 6.77 points, to 466.90 for the day, lifting the sector to a 0.7 percent gain for the week. The Dow Jones Industrial Average slipped 0.3 percent, or 31.79 points, to 11,062.78 Friday and rose 0.5 percent for the week.

Of the 171 stocks tracked by WWD, 107 increased last week, while four held steady and 60 declined.

International markets largely outperformed the U.S. for the week, with the Hang Seng Index running up 3.6 percent in Hong Kong and the DAX gaining 3.2 percent in Frankfurt.

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