The daily iterations of economic data offer a foreboding outlook for retailers as they prepare for the most important time of the year—the holiday shopping season. The U.S. Department of Commerce reported another retail sales decline for October, the fourth consecutive month of decline.
October retail sales dropped 2.8 percent from September and 4.1 percent rom October 2007, signs that confidence is still slipping among American consumers.
Huge slides in motor vehicle sales—down 23 percent from last year—contributed to the October downturn. Furniture and home furnishings sales were down 13 percent, and retail trade sales reported a decline of 5 percent. Food and healthcare sales remained mostly flat.
Given the grim results, retailers across all product segments are expected to slash prices drastically for the 2008 holiday shopping season. With weaker sales projections, analysts expect this year to become one of the most contested shopping seasons in recent history.
Third Quarter Slide
J.C. Penney Co. announced a decline in third-quarter sales of 8.7 percent, due to lower mall traffic—where most of J.C. Penney stores are located—and overall weak consumer spending.
With a looming recession atop the headlines for most of 2008, retail chains have long prepared for weaker fall sales by cutting staff, announcing strategic promotions, and cutting inventory.
“We made further progress in reducing our inventory levels to reflect both current and expected sales demand,” J.C. Penney President Kenneth Hicks said at a conference call to analysts last Friday.
“We also continue to be successful in controlling our operating expenses in response to lower sales.” The company spent $50 million less in overall operating expenses than Q3 last year.
J.C. Penney has “planned an aggressive, integrated marketing campaign” to target consumers in the fall shopping season, Hicks announced. Last week the company started a new advertising blitz on television, at movie theaters, and began promotional mailing to potential customers.
At luxury department store Nordstrom, Inc., company officials are seeking ways to offer lower prices without compromising service, quality and reputation.
“We have lowered average regular price by an average of 22 percent on over 800 styles,” announced company president Blake W. Nordstrom at last week’s Q3 conference call.
Faced with a difficult economic environment, “we take lower mark-ups, which we have and will continue to do,” Nordstrom said.
In addition, Nordstrom has tried to retain customer loyalty by offering greater customer rewards. The company will offer double reward points through the end of the year.
Third-quarter sales dropped 8 percent and same-store sales declined 11 percent. The company also lowered planned new store openings from five to three new stores in 2009.
Bargain Hunting
While traffic at department stores is sliding, consumers are shifting their focus to discount and closeout stores to hunt for better deals.
One of the biggest beneficiaries of this economic downturn has been the Arkansas-based discount chain Wal-Mart Stores Inc. Wal-Mart sold $97.6 billion worth of products during the third-quarter, a robust 7.5 percent increase over the same period last year.
Wal-Mart is making “realistic” projections for the 2008 holiday season by emphasizing its strategy of “price leadership,” CEO Lee Scott said at a conference call last week to discuss Q3 results.
Company officials mentioned numerous times Wal-Mart’s ability to offer lower prices and save money compared to its competition.
“Price leads all of our marketing programs,” said Wal-Mart U.S. President Eduardo Castro-Wright. “We have a number of commercials that show customers how they can save on everyday needs. This message will continue to be very important during the holidays.”
