Retailers report lower sales in July

Numbers signal that consumers are cutting back

Target reported a decline in July sales at stores open at least a year, a closely watched indicator in the retail industry. (Tony Gutierrez/Associated Press)

Americans sought out more bargains and cheaper goods in July, leaving the nation's biggest retailers bracing for a painful back-to-school shopping season.

Retail sales reports released yesterday revealed a country that is rapidly ratcheting back its spending habits, and abandoning midtier and discount shopping mall mainstays that were booming a year ago.

The biggest surprise was a middling month for Wal-Mart Stores, which reported an increase in sales but missed Wall Street's estimates. Wal-Mart also warned its sales would slow in August, as the stimulus from the government's tax rebates fades away.

For months, sales at the big retail stores have been closely tracked as a gauge of trends in consumer spending, which accounts for more than two-thirds of all economic growth. Retailers showed some resilience, with many stores beating sales estimates, in part, because of the government's tax rebates.

But as the stimulus program winds down, few buffers will separate retailers from consumers struggling with higher fuel and food prices, a housing price collapse, and a tight credit market.

"August is going to continue to be tough; I don't think anybody made any bones about that," Todd D. Slater, an analyst at Lazard Capital Markets, said.

Bucking the trend, two Massachusetts-based retailers, TJX Cos. of Framingham and BJ's Wholesale Club Inc. of Natick, saw same-store sales rise in July. TJX said same-store sales were up 3 percent in July, just shy of analysts predictions of 3.3 percent. Same-store sales for BJ's rose 16.7 percent, with gasoline sales contributing 9.7 percent of the increase.

The back-to-school months are traditionally a major selling season for retailers. But Slater predicted that this year, "back to school is not going to happen."

"Most kids will be returning to school in last year's duds," he said.

Consumer spending, which has slowed considerably, actually declined in June after adjusting for inflation, according to a report this week from the Commerce Department.

The trends have been painful for many large retail chains; in July, Saks, Kohl's, J.C. Penney, and Target all reported declines in sales at stores open at least a year, a closely watched indicator that is also known as "same-store sales."

At Wal-Mart, sales were up 3 percent compared with a year ago. Analysts had expected a 3.4 percent increase.

A Wal-Mart executive blamed the end of tax rebate program for the slowing sales trend. "With the end of the stimulus checks, we know consumers are spending more cautiously," Eduardo Castro-Wright, the company's domestic president, said in a statement. He also said the company had seen trends suggesting that some customers are living paycheck-to-paycheck.

Gap said sales fell 11 percent in July, worse than estimates. Sales at Old Navy, which is aimed at a lower-tier crowd, dived 16 percent.

The weak labor market, which has played a big role in the cutback in consumer spending, has shown few signs of improvement. The Labor Department said yesterday that new claims for unemployment benefits rose last week to their highest level in six years. New applications rose by a seasonally adjusted 7,000 to 455,000 for the week.