February 27, 2021

Late July Weakness Clouds Retail Outlook

While the July heat pushed people into malls in search of air-conditioning, what they bought there wasn’t necessarily a positive sign for retailers.

Sales at stores open at least a year, as reported Thursday, rose 4.4 percent in July at the 25 retailers tracked by Thomson Reuters, which matched analysts’ expectations. But they were largely buying marked-down dresses, shoes and other summer gear, rather than stocking up on full-priced clothing for the fall.

That, plus a significant slowdown in late July, suggested that no one is particularly concerned with back-to-school shopping yet, and sounded a warning that how already shaky middle- and lower-income consumers might wait for bargains next month.

“July is not a predictor because it’s a clearance month,” said Joel Bines, managing director in the global retail practice at the consultancy AlixPartners, but “the cadence in July was an early, very strong July followed by a late, very weak July.”

Mr. Bines said that “if that weakness in July carries over into early August, it will really put pressure on retailers,” who will have to discount the back-to-school merchandise to make room for fall clothing.

Some schools start as early as July, and “generally in early back-to-school markets you would see a preponderance of early back-to-school and fall products” selling well, he said. But the 100-degree weather in much of the country “caused consumers to go through the malls, but to purchase wear-now items and lighter clothing as opposed to the more traditional sweaters, vests, back-to-school items.”

“Fall is not on anyone’s mind, anywhere in the country, right now,” he said.

For instance, at J. C. Penney, where same-store sales rose 3.3 percent, there was “particular strength in the sales of “wear now” summer apparel and fashion accessories,” the company said. At Ross, where same-store sales increased 7 percent, dresses were the top-performing category, with sales increasing in the high teens.

”Late July slowed materially,” Adrienne Tennant, an analyst at Janney Montgomery Scott, wrote in a research note after same-store results were reported. Just as new merchandise hit stores, with higher price tags because of increased cotton and raw-materials costs, “sales cadence slowed across the sector, leading to several misses across the space.”

The teenage-apparel retailer Aéropostale said its second-quarter same-store sales fell 14 percent, and sales in general slid 5 percent, to $468.2 million, for the quarter.

In July, Gap Inc. saw same-store sales weakness in all of its divisions. In North America, Gap declined 6 percent, Banana Republic 4 percent, and Old Navy 3 percent, while international sales fell 10 percent.

Kohl’s posted surprisingly weak results, with same-store sales falling by 4.6 percent, compared with analysts’ predictions of sales rising by 3.5 percent. The company said children’s clothing and footwear did worse than the rest of its divisions.

The gap between Kohl’s results and analysts’ forecasts was the biggest of any retailer in the July results.

The company with the highest comparable increase, which also beat analysts’ expectations by the most, was Saks Fifth Avenue, reporting an increase of 15.6 percent, compared with analyst predictions of 8.5 percent. Saks and its competitors have been enjoying luxury consumers’ appetite for shopping. Nordstrom and Neiman Marcus, the other high-end stores reporting same-store sales results on Thursday, had increases of 6.6 percent and 7.7 percent, respectively.

Article source: http://feeds.nytimes.com/click.phdo?i=6e9ea48f75f1edc272b6e706aa9d79f2

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