Shoppers drop

NEW YORK

Facing tough times, top executives from some of the nation’s best-known retail brands talked strategy Wednesday as the Commerce Department announced the biggest drop in monthly retail sales in three years.

Nothing seemed immune - not pizza nor luxury products - when retail sales fell 1.2 percent in September, the largest dip since August 2005, when sales slipped 1.4 percent. Wednesday’s decrease was nearly twice the 0.7 percent drop that had been expected.

Stephen Sadove, chairman and chief executive officer of luxury retailer Saks Inc., speaking here at a conference sponsored by Argyle Executive Forum, said sharp market fluctuations have deepened consumer uncertainty. Even luxury shoppers are not impervious to the rocky conditions, he said, citing the experience of the New York-based company, which last month saw a 10 percent decline in comparable-store sales - compared with 10 percent growth at the end of the fourth quarter.

“It’s psychological, and it’s how do they feel like shopping and how do they feel about how their portfolio is doing,” he said of high-end retail customers. “You’re seeing some bifurcation in terms of what’s going on. In some cases, if they were buying two of the handbags, maybe they’re buying one of the handbags right now.”

As for this season’s Christmas sales - projected by the National Retail Federation to be the worst in six years - Mr. Sadove said, “It’s probably going to be a more promotional environment.

“I’m not going to be Pollyanna in terms of saying everything’s great out there. It’s not,” he said. “We’re going to react to the environment; we’re going to react to what our competitors are doing. We’re going to do what we need to do to get our inventories in line.”

But, he stressed: “Everybody’s in the same boat. The great companies are going to adapt to the new environment.”

Domino’s Pizza Inc., the Ann Arbor, Mich.-based pizza chain, has had to raise prices to cover increasing costs. While he cautioned against “playing the blame game,” Chairman and Chief Executive Officer David Brandon acknowledged: “There’s a lot to complain about.”

Gas prices are historically high despite recent drops, the price of cheese is up and even the price of wheat quadrupled earlier in the year, he said. Now the company is facing an additional challenge as its franchisees are having difficulty securing enough credit to improve or expand locations.

“Historically, we’ve never wanted to become the bank of our franchisees,” Mr. Brandon said. But until credit markets improve, the company may lend financial support to some of its top shop owners, he said.

Earlier in the week, the company announced what he described as “lousy” third-quarter earnings of $10.1 million, compared with net income of $11 million a year ago. The results stemmed from lower U.S. same-store sales, which fell 6.1 percent. Internationally, however, sales rose 5.4 percent.

“We’ve got a consumer in the U.S. right now that’s being really, really careful about where they spend their food dollar,” Mr. Brandon said, adding that their price increases have impacted consumption.

Among the steps that Domino’s is taking to increase its sales amid the turbulent economy is expanding its menu offerings to include pasta and sandwiches.

“We’re coming up with a value-menu concept. We’re doing a lot of things that two years ago, we never thought we’d end up doing to adapt to the situation that we’re confronted with,” he said.

Harold Reiter, head of the executive recruiting firm Herbert Mines Associates, which focuses on the retail industry, said retail chiefs should be especially cautious in making decisions under current market conditions.

“As daily headlines and blogs and e-mails and CNBC alerts remind us, corporate leaders are under heavy scrutiny,” said Mr. Reiter, chairman and chief executive officer of the firm. “In light of the failures that got us to this point, expectations are higher, and we have to work twice as hard to get the same results.”