As concerns over high unemployment looming strong, stores cut prices to attract shoppers, a strategy that will affect sales in the coming back-to-school season.
The cut back in prices that began in June and continued last month is a result of the troubles faced by the retailers during the worst of the recession. At the trough of the recession in 2008, same-store sales declined sharply, leading to the weakest holiday season in decades. Any renewed weakness in consumer spending, which accounts for two-thirds of the U.S. economy, could cast a shadow on the recovery.
The 28 retailers tracked by Thomson Reuters reported a 2.9 percent rise in July sales at stores open at least one year, missing Wall Street forecasts of 3.1 percent. Of those, 17 reported lower-than-expected sales, while nine beat estimates. With July in general being a slow month for retailers to clear out summer goods and prepare for the back-to-school season, but it is seen as an early indicator of autumn sales. The back-to-school shoppers held back to see whether retailers will cut prices in August and September adding further woes.
Some retailers that did manage to eke out gains did so by taking customers from rivals, rather than from an increase in overall spending.
David Bassuk, who leads consulting firm AlixPartners' global retail practice said,
"We're back to a game of chicken between consumers and retailers over discounts." "We're going to have a slow, painful back-to-school season."
Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors said,
"We are now in an environment where the dollars in consumers' pockets are fewer, so the competition for those dollars has increased."
KeyBanc Capital Markets analyst Ed Yruma,
"It's a zero-sum game." "The retailers that focused on price did better on a relative basis."