Economy in recovery: October sales offer relief to merchants

NEW YORK (AP) - October's retail sales results, the best performance since April 2008, show that Americans are spending a little more. But will they be willing to pay full price this holiday season?
Stores are heading into the period with slashed inventories, determined not to have the fire sales that characterized last Christmas. But shoppers are still facing tight credit and a weak job market and might wait for fat discounts or not buy at all. That game of chicken will determine the holiday winners and losers.
"Shoppers are still being cautious, but we are seeing some signs of recovery in the economy," said Carl Steidtmann, an economist at Deloitte Research, who forecasts holiday sales will be unchanged from a year ago.
Sales at stores open at least a year rose 2.1 percent in October, according to the International Council of Shopping Centers-Goldman Sachs tally, compared with a 4.2 percent drop in October 2008. The October results beat estimates for a 1 percent gain and followed a surprising 0.6 percent increase in September.
Sales at stores open at least a year are considered a key indicator of a retailer's health.
For the holidays, more consumers will be paying full price and shopping earlier than a year ago because they are afraid the merchandise they want won't be there later, Steidtmann believes. But he also noted that while reduced stock will help boost store profits, it will likely limit sales as merchants run out of products.
Others like Ken Perkins, president of retail research firm Retail Metrics, says it's going to be hard to get shoppers to pay full price unless they really want the item badly.
"Consumers are still extremely price-sensitive," he said.
As merchants announced their second consecutive monthly sales gain after more than a year of declines, the results showed that shoppers still were not splurging, restrained by worries about the economy. But the improving figures all pointed to sales momentum, encouraging as the industry heads into the holiday shopping season.
Affluent shoppers, who had been tight with their purse strings since the financial meltdown ballooned last year, spent more for designer duds, delivering solid gains for Saks Inc. and Nordstrom Inc.
Other bright spots were Costco Wholesale Corp.; TJX Cos., which operates T.J. Maxx and Marshalls; and Gap Inc. But sales at most teen merchants were weak.
October's reading excludes results from Wal-Mart Stores Inc., the world's largest retailer, which stopped issuing monthly sales reports earlier this year.
Business was helped by a number of factors. Cooler weather helped boost sales of plaid shirts, leggings and boots. And early holiday discounts also may have drawn shoppers to get a head start on Christmas buying.
Those with money are now becoming a little more willing to spend it, soothed by improving housing and stock markets.
But retail sales figures are mainly starting to look better because they are being compared with the free fall in spending a year ago.
Clearly, there's plenty of concern about the fragility of American consumers who continue to grapple with weak employment. More than 6 million additional people were jobless in September 2009 than in September 2008.
That's why many stores, including Toys R Us and Sears, are aiming to get shoppers early by hawking deep sales and expanded hours usually reserved for the day after Thanksgiving. But shoppers shouldn't expect "80 percent off" signs early in the season as consumers found a year ago.
Stores are hoping there will be more shoppers like Ann Allenbaugh of Montgomery, Ohio, who plans to start holiday shopping sooner than usual.
"It does seem like the prices are down now at the mall, so I would buy something I saw at a good price," she said.
Still, the concern is that shoppers will show up for the big specials on the day after Thanksgiving and then not come back to the malls until a few days before Christmas.
Gale Montague, from Richmond, Va., said in past seasons she would be done by Thanksgiving. "Now, I'll wait for the sales, and that means later," she said.
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AP Writers Christopher S. Rugaber in Washington, Michael Felberbaum in Richmond, Va., and Dan Sewell in Cincinnati contributed to this report.