Early-Season Shoppers Go for Chic or Cheap

Both luxury retailers and wholesale club stores logged strong same-store sales gains in November, indicating that Americans may be tucking pricier gifts under the Christmas tree this year along with some bargains.

A string of California companies blew past expectations in the month, including Gap Inc., Guess Inc., Bebe Inc. and Pacific Sunwear of California Inc.

But overall retail sales nationwide rose 3.6% -- less than the anticipated 4%. And that prompted some experts to adjust their forecasts downward for the holiday shopping season. Bank of Tokyo-Mitsubishi, which conducted a tally of 74 chain stores nationwide, now expects same-store sales, or sales at stores open at least a year, to rise 4% instead of 4.5%, said Michael Niemira, the bank’s chief economist. Same-store sales are considered the best measure of a retailer’s health.

“The breadth of improvement was simply not there in November, and I find that troubling,” said Niemira, who was particularly disappointed that 40% of the retailers surveyed reported year-over-year declines.

But economists, including Niemira, say they still think retailers will post their best holiday sales increases since 1999 -- partly because the intervening years were lackluster, at best. Last year was particularly dismal with November-December retail sales, as tracked by the Commerce Department, rising just 2.2%, the slimmest gain in three decades.

The National Retail Federation, the industry’s largest trade group, said Thursday that it was sticking to its prediction that sales would rise 5.7% to $217.4 billion.

“This holiday season is not going to be a blockbuster,” spokeswoman Ellen Tolley said. “It’s going to be a return to normalcy.”

In some ways, November’s results reflected past trends, with wholesale club stores as a group rising 9.7% -- led by a 14% jump for Costco Wholesale Corp. -- and department stores collectively dipping 1.1%. Discount stores rose 4%, with Wal-Mart Stores Inc., the world’s largest company, posting a 3.9% gain and Target Corp. advancing by 6.2%.

San Francisco-based Gap, the nation’s largest specialty retailer and parent of 4,200 Gap, Old Navy and Banana Republic stores, saw same-store sales rise 6%, with all U.S. divisions posting increases. Banana Republic, its priciest chain, posted the largest gains, at 14%.

Pacific Sunwear, parent of PacSun and d.e.m.o chains, one of retail’s hottest performers, sailed ahead of the pack in November. It logged an 11.7% increase on top of an identical gain last year.

In another high note, Los Angeles-based Guess’ same-store sales rose 12.3%, nearly double what analysts were expecting, and Brisbane-based Bebe notched an increase of 9.1% after falling 15.1% last year.

City of Industry-based Hot Topic Inc., which sells music-themed clothes and accessories to teens, logged a 7.3% gain. The company boosted its fourth-quarter earnings projection by a penny to 42 cents a share. The retailer, which also runs the Torrid chain for plus-size young women, has continued to shine because its merchandise is so unusual, analysts say. Where else can you find a black robe with flames on the pockets or a T-shirt with a smiley skull?

Not all teen apparel retailers sprinted from the gate.

Wet Seal Inc., the Foothill Ranch parent of the Wet Seal, Arden B, Contempo Casuals and Zutopia stores, which has been trying to battle its way back into the hearts of teenage girls for more than a year, suffered a 6.7% decline in same-store sales.

Department stores logging particularly disappointing results included Sears, Roebuck & Co., whose same-store sales slipped 3.6%, and Kohl’s Corp., which dropped 4.4%.

Most interesting to some analysts was the way higher-end retailers, including Seattle-based Nordstrom Inc., strutted merrily through the month.

“What strikes us as remarkable is that the most successful chains were the very upscale ones -- Saks Fifth Avenue, Neiman Marcus -- they did extremely well,” said Kurt Barnard, president of Barnard’s Retail Trend Report.

Neiman Marcus Group Inc. said its gains were partly because of livelier sales of dresses, shoes, designer handbags and jewelry. Sales growth was strongest in West Coast stores, the Dallas-based company said.

Economists attribute the upturn at the high end, which has been building in recent months, to an improving economy, plumper stock portfolios and tax rebates that favor higher-income households.

“A lot of the strength we’re seeing in cash flow are weighted toward the higher-income households right now,” said Scott Hoyt of consulting firm Economy.com. “So they’re increasing their spending more rapidly than lower-income households.”

Retailing stocks were largely mixed, with some specialty chains and department stores taking hits. Sears shares, for instance, fell $2.27 to $52.59, and shares of trendy apparel seller Abercrombie & Fitch, whose sales declined 8%, dropped $2.61, to $24.67, both on the New York Stock Exchange. Costco gained 37 cents to $36.17 on Nasdaq.

Some economists expect sales to start picking up, partly because they think consumers are playing what they call “retail chicken” -- holding back on purchases in hopes that prices will sink as Christmas nears.

“The bulk of gains we’re expecting may materialize very close to Christmas or the week after Christmas,” said Sung Won Sohn, chief economist with Wells Fargo & Co.

Analysts have maintained that lean inventories could help retailers avoid the drastic discounting that dominated last year’s holiday season, eroding profits. Retailers such as Gap have spent more money on advertising this year, hoping to prompt full-price purchases.

“We’re approaching our promotions this season in a much more strategic way,” spokeswoman Jordan Benjamin said. “It’s not going to be reactionary. That’s our hope.”

But retailers do what they have to do if merchandise isn’t selling, said Carl Womack, PacSun’s chief financial officer. “Retailers will react to what’s happening in the stores on a daily, or at least weekly, basis.”

And although some industry insiders have been encouraging retailers to buy early because low inventories could result in shortages of this season’s best sellers, Sohn predicts that consumers will wait anyway. “You may not get what you want,” he said, “but I think consumers today are willing to make the trade-off.”

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Mixed bag

Many retailers reported strong sales last month.

Percentage change from a year ago in November sales at stores open at least a year

*--* Company % change Guess +12.3% Pacific Sunwear +11.7 Nordstrom +7.4 Hot Topic +7.3 Target +6.2 Gap +6.0 Ross +5.0 Neiman Marcus +5.8 Wal-Mart +3.9 Federated -0.1 J.C. Penney -0.8 Sears -3.6 Kohl’s -4.4

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Source: Company reports