The unusually dramatic headline comes from the New York Times. Note this drop was a not a surprise to some analysts such as Gary Shilling, who predicted a marked fall in retail sales, which when you allow for the fact that gas and food are not terribly discretionary, implies much greater declines in apparel and other categories.
The story also reports that deep discounting is not enticing many consumers to buy. And why should it? Broke is broke.
From the New York Times:
Sales at the nation’s largest retailers fell off a cliff in October, casting fresh doubt on the survival of some chains and signaling that this will probably be the weakest Christmas shopping season in decades.
The remarkable slowdown hit luxury chains that sell $5,000 designer dresses as badly as stores that offer $18 packs of underwear, suggesting that consumers at all income levels are snapping their wallets shut.
Sales at Neiman Marcus, the luxury department store, dropped nearly 28 percent in October compared with the same month last year. Sales fell 20 percent at Abercrombie & Fitch, nearly 17 percent at Saks, 16 percent at Gap and nearly that much at Nordstrom.
Of the more than two dozen major retailers that reported on Thursday, most had sales declines at stores open at least a year, the majority of the decreases in double digits. Deep discounters like Wal-Mart and BJ’s Wholesale Club reported gains…
“October was every bit as bad we feared,” said John D. Morris, a retailing analyst with Wachovia. “Maybe worse. October’s numbers were so disappointing, particularly in the final week, which had to leave retailers in a state of high anxiety going into the holiday season.”
Indeed, the situation for retailers is so dire that it is creating opportunity for any consumers in a mood to spend money. Seven weeks before Christmas, stores are offering eye-catching bargains as they struggle to move merchandise.
“This is the year the consumer has been given a holiday gift beyond belief,” said Marshal Cohen, chief industry analyst for NPD Group. “You can get anything, anywhere, at any price.”….
Kohl’s will stay open until midnight this Friday and offer an array of doorbusters, such as $250 diamond earrings for $77.99. Kmart is offering “early Black Friday” deals on Sundays, such as a Sylvania 32-inch LCD television for $439.99, instead of the usual $549.99….
Only a few months ago, retailers thought they were prepared for the economic slowdown. They cut inventories in anticipation of weak back-to-school sales. But to their shock, sales declines reached double-digits in September, only to get worse in October.
The result? Retailers have too much fall merchandise still on their shelves, even as Christmas merchandise is starting to arrive.
“I’ve never seen as many ‘percent off the entire store’ promotions as we’re seeing right now,” said Kimberly Greenberger, a retail analyst at Citigroup who has been studying apparel sales and promotions for a decade….
“What we’re hearing anecdotally from different retailers is that when they’re putting something on sale at 30 or 40 percent discount it is no longer having an effect on consumers,” Ms. Greenberger said. “They’re having to cut prices 50 to 60 percent to get consumers interested.”…
While the stores’ price cuts are good news for consumers, they are a dangerous tactic for retailers.
Retailers usually make most of their profit during the Christmas shopping season. And while they always offer impressive sales, they plan to discount only about 25 percent of their merchandise, not half of it, Mr. Cohen said. Too much discounting erodes profits. And by cutting prices so early, retailers risk running out of stock, or color and size options, before the season’s home stretch….
Mr. Cohen of NPD Group said wise retailers would not sacrifice profits just to shove goods out the door. But he acknowledged that in such a panicky climate, the race to discount merchandise had become nearly unstoppable.
“What’s happening is the retailer is almost saying, ‘Please just come in,’ ” he said. “ ‘We’ll pay you to shop.’ ”
Some names sail on, but just barely. Hermes is reporting lower growth rather than a decline. From Bloomberg:
Hermes International SCA, the French maker of Birkin handbags, said third-quarter sales growth slowed to 4 percent after deteriorating economies in Japan and other main markets cut into luxury-goods demand.
Hermes fell as much as 6.3 percent, the most in three weeks, in Paris trading. Revenue rose to 410.5 million euros ($527 million), the Paris-based company said today, just below the 410.8 million-euro median estimate of six analysts surveyed by Bloomberg. Growth was a third of the prior quarter’s 12 percent gain. The bag maker maintained its annual sales-growth goal
Luxury companies face their first sales drop in a decade next year, consulting firm Bain & Co. said last month, as weaker economies and financial-market turmoil hurt demand for higher- priced products from consumer electronics to autos. Purchases of goods from Bang & Olufsen A/S televisions to Harley-Davidson Inc. motorcycles are slumping as demand crumbles.
“During October, retail activity continued to grow at a more moderate pace,” the bag maker said, adding that sales rose 6 percent last month. Annual sales will rise less than the 14 percent pace at constant exchange rates for the first nine months, Hermes said.
Sales rose 1.7 percent in Japan, the source of about a quarter of the total, and gained 9.4 percent elsewhere in Asia. Revenue climbed 8.3 percent in the Americas and added 2.8 percent in Europe, according to the statement.