- The Washington Times - Thursday, October 5, 2006

NEW YORK (AP) — With just seven weeks to go before the traditional start of holiday shopping, retailers’ hopes for an upbeat season are suddenly brighter.

The nation’s retailers reported better-than-expected sales gains yesterday after consumers, encouraged by cooler temperatures and falling gasoline prices, went on a clothes shopping spree at the malls in September. A notable exception was Wal-Mart Stores Inc.

In a marked shift in consumers’ recent behavior, shoppers chose to forgo some low-price operators and headed instead to department stores that have reinvented themselves with better fashion trends. The department store sector — which included such stars as Nordstrom Inc. and J.C. Penney Co. Inc. — posted its best performance since January 1997, while wholesale clubs had their weakest results since January 2005, according to the International Council of Shopping Centers (ICSC).

“The department stores are better poised this holiday season than they have been for many years,” said Ken Perkins, president of Retail Metrics LLC, a research firm in Swampscott, Mass. “The fact that they are faring well will only help drive mall traffic,” which has been declining for years.

Scott Krugman, a spokesman at the National Retail Federation, said department stores’ newfound success will have a psychological effect on the industry.

“When people think of retailing, they think of department stores,” said Mr. Krugman. “I think when department stores are down, people tend to be down on retailing.”

Some analysts speculate that what’s helping to change shoppers’ behavior is the cooling housing market, which they think is shifting spending away from big-ticket items like household appliances and furniture to fashion.

“The consumer who is not choosing to put money into that renovation is now willing to spend money not on any old sweater but a good cashmere sweater,” said John Morris, managing director at Wachovia Securities.

Yesterday’s overall upbeat reports, which included robust results from teen retailers like Abercrombie & Fitch Co., were encouraging because analysts had braced for a consumer spending slowdown in the second half as the economy cooled. But consumers have remained resilient.

The ICSC-UBS index of retail sales rose 3.8 percent in September, but excluding Wal-Mart’s results, the tally rose a robust 6 percent. The index is based on same-store sales, those from stores open at least a year. The department store sector, which has been rebounding over the past couple of months, saw an 8.4 percent same-store sales increase.

“Right now, we are in a sweet spot for spending,” said Michael Niemira, chief economist at the ICSC.

Still, even with better-expected results, Mr. Niemira is still sticking with his 3 percent forecast for same-store sale growth for the combined November-December period.

That’s because there are plenty of challenges, particularly the deteriorating housing market, that could result in heavy layoffs. In fact, while the Conference Board reported last week a rebound in consumer confidence in September, the survey showed lingering concerns about the employment market. Employment showed modest gains in August, with wages barely up, and analysts are forecasting only a modest increase for September when the government reports figures today.

Still, declining gasoline prices, which have fallen 50 cents a gallon in recent weeks, should help ease concerns about jobs. Economists had worried that rising energy costs would derail the labor market as companies look to cut costs by laying off workers.

In a positive sign, the Labor Department reported yesterday that the number of newly laid off workers filing claims for unemployment benefits fell to 302,000 people last week, the smallest number since the week ending July 22.

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