Retail faces challenges for rest of 2007

Retail faces challenges for rest of 2007

	Published : Mon, 10 Sep 2007 21:52 By : Agencies Print this Story

NEW YORK (AP) - Any reason for investor optimism about consumers' resilience in the coming months evaporated after Friday's disappointing August jobs report. That left the major merchants' stocks on shaky ground.

Just a day earlier, on Thursday, the retailers had reported that consumers went on a last minute back-to-school shopping spree last month, resulting in better-than-expected sales despite a weakening housing market, escalating problems in credit availability and turbulence in the financial markets.

But Friday's Labor Department report, which showed a loss of 4,000 jobs in August, marked the first drop in job creation in four years and raised anxiety about shoppers' plans for the critical holiday season. Consumers' comfort level is directly tied to their job security.

Although the report could provide more of a reason for the Federal Reserve to cut interest rates when it meets on Sept. 18, some analysts believe it could be too little too late for the holiday season.

'What this paints is a much more risky economic environment, a much more risky consumer environment,' said Michael P. Niemira, chief economist at The International Council of Shopping Centers. 'The Fed will take action but that is not enough at this point.'

Niemira and other analysts say consumer spending is at a tipping point -- it has been slowing all year and could improve or fall further.

'A recession is in the back of my mind,' said Mike Schenk, senior economist at the Credit Union National Association, which represents 9,000 credit unions nationwide. He noted that in a weak job market, consumers generally spend and borrow less.

Retail stocks have reflected anxiety about consumer spending. The Dow Jones index that tracks broadline retailers, which include discounters, department stores and warehouse clubs, fell almost 3 percent in the past week and almost 5 percent in the past month. The index that tracks apparel retailers fell 4 percent in the past week and almost 5 percent over the past month.

According to the UBS-International Council of Shopping Centers tally of 47 stores, August results were up 2.9 percent, compared to a 3.8 percent gain in the year-ago period. The tally is based on same-store sales or sales at stores open at least a year, considered a key barometer of a retailer's health. Niemira expected no more than a 2.5 percent gain.

Still, the results were helped by a number of one-time factors including a shift in a tax-free sales week to August in two critical states, Florida and Texas. So analysts are closely watching September sales to get a better read on the consumer's ability and willingness to spend, especially with the holiday shopping season season coming up.

'We believe the more normalized months ahead will be a truer gauge on the fall selling season in light of consumer spending trends and the regional housing turmoil,' said John Morris, managing director at Wachovia Securities in a note published Friday.

Neimira thinks more consumers will trade down to discounters like Wal-Mart Stores Inc. The most challenging area is expected to be women's apparel stores including Chico's FAS Inc. and AnnTaylor Stores Inc., which have struggled with disappointing sales this year.

Richard D. Hastings, a retail analyst at Bernard Sands, says one retail segment -- electronics like cell phones, laptop computers and iPods -- should continue to do well throughout the holiday season.

'Consumers are spending more on technology than apparel,' Hastings said. 'Electronics remain very strong.'