Meltdown 101: Bad retail sales could've been worse

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PHOENIX -- Desperate for dollars because of the recession, the nation's merchants have been practically throwing themselves - and their offers of discounts - at penny-pinching shoppers.

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But check out monthly sales figures released Thursday and something seems strange. Yes, sales were down in January, but not by a huge amount - they only slipped 1.6 percent, according to the International Council of Shopping Centers-Goldman Sachs tally.

"It's not pretty. It's definitely not good," said Morningstar analyst Kim Picciola. "But it could have been worse."

The results documented the fourth consecutive month of declines recorded by the index. But the figure still managed to top estimates from investors, who had expected sales to fall as much as 3 percent.

So if the recession's so bad - and everyone's supposedly so hesitant to spend money - shouldn't the results be worse?

Here are some questions and answers about the retail sales report.

Q: What figures were released Thursday?

A: Dozens of retailers - from American Eagle to Wal-Mart - released monthly sales and same-stores sales figures. The data give investors and analysts an important glimpse at where consumers are spending and where they aren't, and how sales compare to the same month last year.

Q: What are same-store sales?

A: Same-store sales, also called comparable sales, are a standard and important retail industry metric. The figure measures sales at locations open at least a year and is used to measure growth at existing stores.

Q: What did they show?

A: January sales fell 1.6 percent, according to the International Council of Shopping Centers-Goldman Sachs tally. That's not as bad as the 2 percent to 3 percent drop that was forecast. The sales figures capped the final month in the industry's fiscal year, which saw a meager 0.9 percent sales increase - the slowest pace since at least 1969, when the index began.

Q: Does that mean people are buying things? I thought they weren't.

A: When it comes down to it, we're suckers for a good deal. Consumer spending may be down and shoppers may be as deliberate as ever, but they haven't stopped shopping completely. Instead, they're trading down to cheaper items, cheaper brands and cheaper stores.

Q: The way stores have been selling merchandise at huge discounts - at, say, 80 percent off - shouldn't sales be down more than 1 or 2 percent?

A: Not really.

The numbers get a statistical boost from the weight of Wal-Mart Stores Inc., the world's largest retailer. Sales in the company's stores account for more than 53 percent of the ICSC index. That means a good month at Wal-Mart masks other poor results, particularly in segments of retail that rely on discretionary spending.

Excluding Wal-Mart, which said overall sales climbed 2.1 percent, January same-store sales fell 4.8 percent.

Meanwhile, the figures are also skewed by the heavy presence in the index of discounters and drug stores - two sectors that had positive same-store sales growth in the month.

Finally, despite the big, bold sale signs, not everything is 80 percent off. In fact, many items in stores aren't on sale at all.

Markdowns are more likely to be found on clothing and other discretionary goods, such as furniture, electronics and home decor, as anxious merchants try to make room for spring hues and lightweight attire. But good luck ferreting out a big sale on groceries and prescriptions.

After all, when was the last time your grocery bill came with a 50 percent-off-total-purchase coupon?

Q: So, what about profits?

A: Just because sales aren't as dismal as people expected doesn't mean profits won't be. All that discounting of merchandise means that each sweater sold at 75 percent off comes with a lower profit margin - or cold hard cash a retailer can pocket - than it did when it was marked down 30 percent. Or when it was sold at full price.

Q: Who's doing the worst?

A: Life isn't too rosy for the nation's apparel retailers. On average, sales at nearly a dozen apparel companies fell 12.1 percent in January. Hardest hit was Gap Inc., which saw same-store sales plummet 23 percent. At the San Francisco-based chain's Old Navy stores, comparable sales fell 34 percent. Sales fell 16 percent at women's clothing chain Cache Inc.

The month was grim for teen- and youth-oriented chains and department stores, too. Abercrombie & Fitch Co. said sales skidded 20 percent, although the figure wasn't as bad as experts had expected. Conversely, analysts expected sales would dip just 2 percent at Children Place Retail Stores Inc., thanks to parents who were expected to continue to buy clothing for their kids, even if they wouldn't buy for themselves.

Experts were wrong. Sales there fell 11 percent.

Q: Who's hanging on?

A: Unsurprisingly, discounters and drug stores had the best month in January. Sales at discount retailers like Wal-Mart, Target and Costco rose an average of just under 1 percent in January, thanks to bargain hunters and a big boost from Wal-Mart. Excluding the world's biggest retailer, same-store sales in the category fell an average of 2.5 percent.

Sales climbed an average of 0.6 percent at drug store chains Walgreen Co. and Rite Aid Corp. After all, shoppers typically won't cut back on medicine unless they have to.

Q: Did anyone have a good month, other than Wal-Mart?

A: Teen retailers Aeropostale Inc., The Buckle Inc. and Hot Topic Inc. posted some of the best monthly sales increases out of anyone, thanks to sales that climbed 11 percent, 14.7 percent and 6 percent respectively.

Thomson Reuters analyst Jharonne Martis says that's because they've managed to walk a fine line of appealing to shoppers' wallets and their sense of style.

"They've been able to sell the right merchandise at the right price," she said. "Not only does it have to be a sale, but it has to have some value for the right price."

Q: Does the index often decline?

A: Despite the current four-month downward streak, declines are generally rare.

It's also worth noting that the 4.8 percent decline in sales excluding Wal-Mart isn't too different from the nation's overall economic contraction. The gross domestic product, which measures the value of all goods and services produced within the U.S., slipped 3.8 percent at the end of the year and is expected to be revised to be even lower.

Q: So what? It's just one month, right?

A: That's true - and January is usually a slow month for retailers as they try to get rid of winter merchandise and prepare to restock shelves for the new season. But don't look for any retail recovery any time soon. The nation's stores face more tests during the rest of the year, with the recession - and slow consumer spending - expected to hang around.

AP Retail Writer Anne D'Innocenzio contributed to this report.

(Copyright 2009 by The Associated Press. All Rights Reserved.)

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