Shoppers hold back in July, squeezing retailers and clouding economic picture

By Anne D’Innocenzio
Associated Press / August 7, 2009

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NEW YORK - Shoppers remained tightfisted in July, raising concern about the back-to-school and holiday shopping seasons as well as for the broader economic recovery.

The big worry is that parents will focus on outfitting their children this fall with just necessities like notebooks and jeans. And fear is bubbling up that frugal parents might consider any extra splurges early Christmas gifts.

The persistent pullback, despite signs of a stabilizing economy, could stall the overall recovery because consumers account for 70 percent of all economic activity.

“The consumer is stressed and depressed,’’ said Ken Perkins, president of retail consulting firm Retail Metrics. “Back-to-school shopping season is going to be very late.’’

Worries about job security, retirement accounts, and home values have made consumers focus on necessities like food and other basics. But stores are also grappling with a newly adopted frugality as consumers - even those who have jobs and feel secure about their assets - learn how to save and stick to a budget.

That fixation on frugality is likely to linger even after economic worries dissipate.

Michael Dart, a retail strategist and leader of the private equity practice for consulting firm Kurt Salmon Associates, said that based on what he has been hearing from consumers, some of the purchases may even double as Christmas gifts.

“Shoppers are becoming much more practical,’’ Dart said.

The bargain-hunting played out again in the retailers’ reports, with mall-based apparel stores faring the worst. Among the disappointments were Macy’s Inc. and teen retailers Abercrombie & Fitch Co. and Wet Seal Inc.

The few bright spots were apparel discounters like Ross Stores Inc. and TJX Cos., operator of the T.J. Maxx and Marshalls chains, both of which reported sales gains - a rarity right now - that exceeded Wall Street estimates.

But BJ’s Wholesale Club Inc., the Natick, Mass.-based retail chain, reported that sales for July fell by 6.3 percent, to $722.5 million, from $771.3 million in July 2008. At stores open at least a year, sales decreased by 9.1 percent last month. Excluding the impact of lower gas sales, same-store sales rose 1.8 percent.

A number of special factors also depressed July’s sales results.

Lean inventories left fewer clearance options for bargain hunters, as stores wanted to protect themselves from getting stuck with piles of leftovers. And NPD Group’s chief retail industry analyst, Marshal Cohen, fears that lean back-to-school inventories, particularly at department stores, could stall sales this fall - if shoppers can’t find what they want.

The shift of the sales-tax holidays from July to August in most of the 14 states that have them because of a late Labor Day weekend also stole momentum from July.

Perkins and other analysts have also noted that the uptick in car buying spurred by the government’s cash-for-clunkers program might siphon sales from other categories like clothing and home furnishings.

That could hurt back-to-school shopping as consumers shift available cash to car payments.

Chris Reidy of the Globe Staff contributed to this report.