December 1, 2023

Retail Sales Rise at Expensive Stores but Are Mixed Elsewhere

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. But while expensive stores turned in strong results, including a startling 15.6 percent increase at Saks Fifth Avenue, almost double what analysts had predicted, middle- and low-end stores were largely dependent on marked-down summer clothes for their increases.

“There’s definitely been a split,” said Ken Perkins, the president of the research firm Retail Metrics.

The divide has extended all the way to grocery stores, a manifestation of what Safeway’s chief executive, Steven A. Burd, has described as a “bifurcated recovery.”

“I can’t give you a quantitative percentage, but my guess basically splits our customers as about 25 percent recession’s over with, times are good, spending as they always did,” he said in a recent call with investors. “And then the other 75 percent, really very cautious and very concerned.”

Saks Fifth Avenue, Neiman Marcus, Nordstrom and Macy’s, which owns Bloomingdale’s, have outperformed other department stores throughout the year, mostly on the spending power of well-off shoppers, Mr. Perkins said. “They’ve been seeing better wage gains, more stability, and their confidence level is higher,” he said.

Nordstrom and Neiman Marcus reported July increases of 6.6 percent and 7.7 percent, respectively. Saks said several major categories, including women’s apparel, women’s shoes, men’s apparel and men’s accessories, were big contributors to its increase. Nordstrom said women’s shoes, dresses and cosmetics were popular, and the average purchase price increased compared with July of last year, even as visits fell.

At the other end of the retail scale, there has been a lack of confidence among shoppers.

There is “uncertainty affecting our customers, especially the lower income customer,” said John Cato, chairman, president and chief executive of the Cato Corporation, in a statement. Cato sells budget fashion, and its same-store sales fell 3 percent; analysts had expected a 1 percent decline.

Kohl’s, the midtier department store, also missed analyst expectations, by a margin of 8.1 percentage points. It reported a decline of 4.6 percent, saying that footwear and the children’s department did worse than other categories.

Retail executives say poorer people are not buying at the end of the month, suggesting they are heavily dependent on month-to-month paychecks.

“In a soft economy like we’re experiencing, the difference in sales between the beginning of the pay period and the end of the pay period is approaching double digits,” said Mr. Burd of Safeway. “I’ve never seen that in 20 years.”

With higher prices on gas, food and clothing, lower-end consumers just do not have much extra cash.

Safeway said its food inflation was up 2 percent in the second quarter. Clothing retailers are entering a season where prices are going to be higher than usual, because they paid for fall’s merchandise when cotton was very expensive. Other raw-material costs are also increasing.

While gas prices have tempered a bit, they were still a dollar higher this July than a year ago, said Michael McNamara, vice president for research and analysis at MasterCard Advisors SpendingPulse, which tracks gasoline prices and use along with overall consumer spending.

That dollar a gallon means money “that’s being spent on the gasoline category or sector that’s coming from other areas — high gas prices do matter, and in July, it was about a $10 billion bill,” he said.

In July shoppers went to air-conditioned malls to get out of the heat, but when they visited mid- and lower-end stores, they bought items to wear right away, not fall clothes. And they did not buy much of anything toward the end of the month. For instance, at J. C. Penney, where same-store sales rose 3.3 percent in July, there was “particular strength in the sales of ‘wear now’ summer apparel and fashion accessories,” the company said. At Ross Stores, where same-store sales increased 7 percent, dresses were the top-performing category, with sales increasing in the high teens.

“Late July slowed materially, as shoppers were in search of ‘wear now’ product, and macro uncertainty affected consumer sentiment,” Adrienne Tennant, an analyst at Janney Montgomery Scott, wrote in a research note after same-store results were reported.

That is a troubling sign for back-to-school sales, which traditionally account for the second most important retail season, after the Christmas holiday.

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, said Joel Bines, managing director in the global retail practice at the consultancy AlixPartners. But this year, the 100-degree weather in much of the country had shoppers skipping purchases of traditional sweaters, vests and other back-to-school items.

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

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