- The Washington Times - Friday, July 13, 2007

NEW YORK (AP) — Consumers were eager to buy IPhones and flat-screen TVs in June, but their reluctance to purchase clothing and other nonessentials has retailers worried about the success of the back-to-school shopping season.

As merchants reported their generally modest sales gains yesterday, it was clear that consumers’ uneasiness about higher goods and gas prices and the weakening housing market were forcing many of them to think twice before spending.

The disappointments included department stores like Macy’s Inc. as well as apparel chains such as AnnTaylor Stores Corp. Discounters fared well, particularly Wal-Mart Stores Inc., whose renewed emphasis on low prices helped drive sales gains above analysts’ expectations.

Sales were not as weak as some analysts feared, but the fact that June was nonetheless sluggish did not augur well for back-to-school shopping that begins this month. June, the second-most-important month of the year, is a time when retailers clear out summer goods to make room for fall merchandise.

Most obvious for most consumers is how much they are paying for gasoline — prices at the pump that fell after peaking in late May are again rising, and the national average price for a gallon of unleaded regular is above $3.

And although teens were spending again in June after a slower spring, analysts said it is still too early to tell how the season will fare. The improvement was reflected in reports from retailers including Pacific Sunwear of California Inc. and Abercrombie & Fitch. Despite the concerns about back-to-school sales, J.C. Penney Co. said it saw a good response to its early fall merchandise.

“The picture for the consumer hasn’t changed much,” said John Morris, managing director at Wachovia Securities. “The consumer is facing a lot of headwinds.”

Mr. Morris noted that the spending outlook is also becoming more uncertain because more schools are starting classes later. Teens usually wait to do the bulk of their shopping until after school starts because they want to see what their friends are wearing.

The International Council of Shopping Centers-UBS sales tally of 50 stores rose 2.4 percent in June, compared with a 3 percent gain a year ago. The tally is based on same-store sales, which reflect business at stores open at least a year and are considered a key indicator of a retailer’s health.

June’s results extended the slowing trend retailers have experienced since February.

For some stores, June results were depressed in part by a shift in the calendar that moved the Memorial Day weekend business into May. But retailers of what are known as discretionary merchandise such as apparel and home goods are also coming under increasing pressure as consumers are forced to pay more for food and gas. The still-weakening housing market is also making shoppers wary about spending.

Meanwhile, apparel merchants have problems of their own, including a continuing absence of must-have fashions and competition from the latest electronic gadgets.

Craig R. Johnson, president of Customer Growth Partners, a retail consultancy in New Canaan, Conn., said desirable gadgets such as Apple Inc.’s IPhone are keeping sales of consumer electronics strong.

“The fashion must-haves of the world are not apparel, but the IPhones of the world,” said Mr. Johnson. “They are wearing technology as fashion.”

Wal-Mart, the world’s largest retailer, had a 2.4 percent gain in same-store sales, beating the 0.8 percent predicted by analysts polled by Thomson Financial. The company said its aggressive price-reduction strategy helped boost results, and it promised more aggressive price cuts for the back-to-school season.

“Consumers continue to be challenged financially, with more pressure on discretionary spending,” said Eduardo Castro-Wright, Wal-Mart Stores U.S. president and chief executive officer. “Gas prices have moved to be their chief concern in our latest survey and they appreciate the opportunity to save on everything.”

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