The shell-shocked aspirational consumer showed some signs of life in October.

This story first appeared in the November 6, 2009 issue of WWD. Subscribe Today.

During a month when weak year-ago comparisons and cooler weather failed to lift same-store sales results at many specialty stores, upscale retailers appeared to join the flight to value — and sales gains. Armed with sharper prices, both Nordstrom Inc. and Saks Inc. posted long-awaited sales increases, of 6.5 percent and 0.7 percent, respectively, and Neiman Marcus trimmed its decline to the single-digit range, to 6.2 percent from 17.6 percent in September. Indicative of the frugality of the consumer, however, Saks noted the Saks Fifth Avenue unit “experienced continued weakness,” while Off 5th and its direct unit prospered.

Gap Inc. pulled off a 4 percent comparable-store increase as its value-oriented Old Navy unit was up 14 percent and Banana Republic ahead 5 percent, even as its namesake division trended down 6 percent.

“The improvement in the stock market has had a significant impact on the affluent shopper’s willingness to spend as the luxury market has shown its first positive reading since May 2008,” said Michael Niemira, chief economist and director of research for the International Council of Shopping Centers.

“The high-end consumer has absolutely perked up,” said Citi broadlines analyst Deborah Weinswig, cautioning that “we are still in an environment with the consumer buying fewer better goods. There must be financial implications coming out of this crisis, or Armageddon, whatever you want to call it.”

Retailers initially gained from autumnal weather early in the month, an advantage lost as temperatures moderated. Poor year-ago numbers, accumulated in the days just after the onset of the credit crisis, also aided October’s results. Todd Slater, retail analyst at Lazard Capital Markets, said October “started out as a barn-burner, but closed rather timidly, causing slightly more than half the retailers to miss consensus estimates.” According to ICSC research, October sales gains decelerated in the last week to 1.9 percent on a year-over year basis, from an increase of 2.4 percent and 2.8 percent in the second and third weeks.

The results only added to the uncertainty about holiday. While stocks picked up strongly, with the Dow Jones Industrial Average reclaiming the 10,000 plateau with a 2.1 percent gain to 10,005.96, its best day since mid-July, and the S&P Retail Index gaining 1.8 percent to 388.75, the pickup was tied more closely to a drop in new unemployment claims than by a sense of a surge at retail. Meanwhile, Saks’ shares rose 5.9 percent to $5.90, Nordstrom’s came up 4.1 percent to $33.92 and Gap’s finished with a 3.5 percent increase to $22.86. (For more on stocks, see page 14.)

Although 12 reporting companies raised guidance, “the guide-ups were mostly anticipated, so very few companies actually won the expectation game in October,” Slater said.

“We don’t read too much into October, but we are heartened by these numbers,” said Customer Growth Partners president Craig Johnson, who projected holiday sales could grow 2.4 percent year-over-year if unemployment remains below 10 percent in November and December, and if energy prices don’t skyrocket.

Still, October’s results “show the beginning of the return to health. There’s still a flight to discount,” he said.

Mass merchants turned in a 3.6 percent comp jump, versus a 3.3 percent dip last October, and improved on last month’s increase of 2.9 percent, according to data compiled by WWD. Leading the charge, and raising their guidance, were off-pricers The TJX Cos. Inc. and Ross Stores, ahead 10 percent and 9 percent, respectively.

“The habits of thrift are going to stay with the consumer,” Johnson said, estimating that even post-recovery, about 50 percent to 60 percent of new discount consumers will continue to shop at the off-price retailers.

Other than Target Corp.’s 0.1 percent slip, Stein Mart Inc., with a 4.9 percent decrease, was the only mass merchant registering a decline.

Gregg Steinhafel, Target’s chairman, president and chief executive officer, noted that, as in September, “October comparable-store transactions were positive, and comparable-store sales in apparel were slightly stronger than for the company overall.”

Helped by the improved numbers at high-end Saks, Nordstrom and Neiman’s, average comps in the hard-hit department store sector slid just 0.9 percent, versus a 12.9 percent decrease last year. Macy’s Inc. registered a 0.8 percent decline, while The Bon-Ton Stores Inc. put up a 3.1 percent increase.

Kohl’s Corp., which registered a 1.4 percent jump, and J.C. Penney Co. Inc., which had a 4.5 percent comp dip, are “lagging,” Citi’s Weinswig said. The retailers both missed analysts’ estimates, and cited Halloween as a reason for sluggish sales.

Specialty retailers fared the worst last month, as the sector’s comps deteriorated to an average 1.4 percent decline in October, from a 0.7 percent decrease in the previous month.

Despite gains of 3 percent and 4.3 percent from Aéropostale Inc. and The Buckle Inc., teen apparel retailers “laid an egg in October,” according to Retail Metrics president Ken Perkins, who explained the group reported a 4.7 percent drop in comps, versus consensus estimates of a 1.3 percent dip.

The relatively light gains at Aéropostale and Buckle disappointed investors, who sent their shares down 12 percent and 6.2 percent, respectively, to $33.47 and $29.73.

Abercrombie & Fitch Co., Zumiez Inc. and American Apparel Inc., which reported declines of 15 percent, 8.9 percent and 6 percent, respectively, all helped pull down the average.

“We’re not out of the woods yet,” said Susquehanna Financial Group retail analyst Thomas Filandro. “Top-line demand is still choppy. We think of October as an anomaly given that the prior-year comparisons were so out of the norm.”

More important, he noted, will be the unofficial kickoff of the holiday season over Thanksgiving weekend. “We feel like there will be lulls in shopping patterns until we reach event periods,” he said, citing both holiday and spurts of colder weather as examples.

While American Eagle Outfitters Inc. posted what he called a “disappointing” 5 percent comp decline, he was enthused about the company’s recent decision to mark down flannel shirts to $24.95 from $39.50. “This could be a huge win for them,” Filandro said, voicing approval of selective, shotgun-style promotions over across-the-board discounting. “They bought big on one style-based item.”

There was widespread agreement among analysts that consumers at all income levels are increasingly value-centric.

“We didn’t necessarily learn anything new in October,” said Andrew Gledhill, an economist at “The consumer is still in the dumps but it’s not as bad as it was last year or even at the beginning of this year.”

Gledhill, who predicts holiday to be flat versus 2008, said the consumer would still bargain hunt, especially in view of last year’s discounts. However, he’s unsure of whether consumers, fearful of stock shortfalls, can be “retrained” to buy more at full price.

“I don’t know if I buy that,” Gledhill said, acknowledging most retailers are probably “understocked.”

“Consumers have begun to loosen their purse strings,” he said, “but I think there is some risk of further retrenchment in the first half of 2010. It’s such a murky picture. Right now, the consumer is fearful of lost jobs.”


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