A sleepy September rounded out an uninspiring back-to-school season, as shoppers held off on purchases until the last minute — and laid the groundwork for a highly promotional holiday.

This story first appeared in the October 6, 2010 issue of WWD. Subscribe Today.

Analysts and other experts preparing for Thursday’s reports on September same-store sales from major retailers believe the heavy-handed promotional cadence established this year during b-t-s will carry into holiday. This would appear to make it virtually certain that the robust gains of the first half, achieved against anemic prior-year results, won’t carry into the second six months of 2010 in regards to sales, margins — or profits.

“The 2010 holiday shopping season will be spectacularly unspectacular for many consumers, but that will suit retailers who remember well the turbulence of holiday ’08,” Janet Hoffman, managing director of Accenture’s retail practice, said Tuesday, adding that her firm’s data suggest consumer spending will be flat versus last year.

That’s slightly good news compared with the debacle that was 2008, but not great news when stores recall the halcyon days of 2007 and earlier.

The importance of Black Friday may also be diminished this year, as retailers “maintain their discounts” throughout the season rather than “focus on activity” around the day after Thanksgiving, said Hoffman, noting that shoppers are choosing to shop online more.

However, two retail industry associations weighed in Tuesday with holiday forecasts that, while conservative, predicted better results than last year.

The National Retail Federation projected a 2.3 percent gain in total sales to $447 billion, while the International Council of Shopping Centers forecast a 3 percent to 3.5 percent increase in comparable-store sales at chains and a 2.5 percent rise in general merchandise, apparel, furniture and other categories, or GAFO, sales.

The forecasts are tempered by the unemployment rate sticking at 9.5 percent, and declining confidence in the economy and increased savings among consumers.

The bright side — especially with respect to the bottom line — is that retailers are able to do more with less, according to Matthew Shay, president of the NRF.

“They’ve found ways to operate innovatively in terms of inventory control, having the right mix, promoting and pricing,” he told WWD. Shay also said while there’s still going to be plenty of promoting during Christmas, in many cases it will be preplanned with markdowns that still generate profits. “It’s a more sophisticated approach.”

In addition, Shay said that b-t-s numbers were slightly better than expected, that there’s some pent-up demand among consumers who have been saving and paying down debt, and that apparel and electronics could have a decent season and appear to be driving the business currently. However, the stubborn unemployment rate “gives consumers pause.”

While cautiously managing inventories, some retailers could get caught short on certain items, Shay noted. “The challenge is how to manage out-of-stock versus excess inventory.”

NRF’s 2.3 percent forecast for holiday, defined by the association as sales during November and December, is slightly lower than the 10-year average holiday sales increase of 2.5 percent, but a marked improvement from last year’s 0.4 percent uptick and dismal 3.9 percent holiday decline in 2008.

“Though the retail industry is on stronger footing than last year, companies are closely watching key economic indicators like employment and consumer confidence before getting too optimistic that the recession is behind them,” Shay said.

Michael Niemira, chief economist and director of research for the ICSC, also sees more good than bad as holiday approaches.

“The key story is that the retail recovery continues and that bodes well for the upcoming holiday shopping season,” he said. “Additionally, we expect holiday hiring to improve moderately over last year and overall employment growth to improve as well, which in turn should support increased spending.”

If the holiday forecast of 3 to 3.5 percent is hit, it would be the largest since 2006.

Meanwhile, while expectations for September results are modest — Thomson Reuters projected an average comparable-store sales increase of 2.1 percent for the month — the numbers could provide something of an upside surprise. That was the case Tuesday when Walgreen Co. reported that same-store sales for the month, expected to decline 1.3 percent, came in 0.4 percent ahead of September 2009.

According to SpendingPulse, which estimates total U.S. retail sales made by cash, check or credit card, apparel sales improved 3.8 percent in September, buoyed by a 2.3 percent rise at children’s apparel retailers and a 7.9 percent jump at teen retailers. Women’s apparel sales slid 0.2 percent, while sales at men’s apparel retailers declined 3.4 percent.

Michael McNamara, vice president of MasterCard SpendingPulse, said the positive sales at kids’ and teen retailers could be attributed to the highly promotional b-t-s climate. If September is any indication, even if consumers spent more, they were likely to favor retailers offering promotions as many stores turned to discounts last month to rouse thrifty, budget-conscious shoppers of various age groups.

Brean Murray, Carret & Co. analyst Eric Beder said September results were “not a disaster” and will “confirm that the current retailing environment will be one of low growth and high Darwinian competition.”

However, competition remains heated in the teen sector, and he expects American Eagle Outfitters Inc. to revise third-quarter earnings guidance downward since discounts deepened “as the month dragged on.”

But Weeden & Co. analyst Amy Noblin said she expects AEO to upwardly revise guidance, as the retailer took fewer markdowns than anticipated.

The promotional tug-of-war over consumer dollars was more heated between Abercrombie & Fitch Co. and Aéropostale Inc., she said, while retailers like Gap Inc. used heavy discounts to clear inventory. Gap Inc. promoted “fairly heavily” because of weightier inventory, Noblin said.

Needham & Co. analyst Christine Chen is concerned Gap’s Banana Republic unit, which has promoted at 40 percent off to drive sales, may have overdone it and put itself at risk of brand deterioration. “They have trained the customer to want that sale,” she said. “The merchandise is not a disaster, but it’s clearly not amazing enough to pay full price.”

Such discounting not only makes it hard to retrain the Banana Republic customer, but it also pressures rivals J. Crew Group Inc. and AnnTaylor Stores Corp. Aggressive promotions may be around for a while, as comps become more difficult and consumers purchase closer and closer to need. And while inventories seem to be in better shape than a year ago, there’s still the possibility that retailers, anxiously awaiting consumers come holiday, will pull the promotional trigger earlier, according to Weeden’s Noblin.

“There’s a valid need for market share gains,” she said. “We expect holiday 2010 to look a lot like back-to-school 2010.”

Markets rallied around the world Tuesday as Japan’s central bank moved to support the country’s economy and the U.S. service sector showed signs of strengthening. The S&P Retail Index advanced 1.9 percent, or 8.40 points, to 462.95, as the Dow Jones Industrial Average gained 1.8 percent, or 193.45 points, to 10,944.72, inching closer to the 11,000 level not seen since May 4.

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