Retailers post choppy June, deepen discounts

NEW YORK (AP) - Stores deepened discounts more than planned in June to draw recession-scarred shoppers to buy summer tops and other merchandise. But shoppers bought mostly items they needed, resulting in small revenue gains.

The mixed results from June, released Thursday, are raising concerns about the back-to-school season and consumers' ability and willingness to hit the accelerator on spending.

The International Council of Shopping Centers' index of June retail sales rose 3 percent, the low end of its growth forecast that ranged from 3 to 4 percent. But that's compared with a 5.1 percent decline in June 2009.

The figures are based on revenue at stores open at least a year and are a key indicator of retailers' health.

The third straight month of modest sales gains after a surprisingly solid start to the year underscores the choppiness of the economic recovery and puts more pressure on retailers to come up with innovative tactics to get shoppers to spend in the critical months ahead, instead of just resorting to price slashing.

Already, office supplier Staples Inc. is pushing penny deals, and teen merchant American Eagle Outfitters Inc. is promoting another gimmick starting later this month - anyone who tries on a pair of jeans will get a free smart phone.

"I think the competition is going to be intense," said Sherif Mityas, a partner in the retail practice at management consultant A.T. Kearney. "The economy is recovering in fits and starts."

Back-to-school merchandise starts flowing into stores next week; it accounts for almost 40 percent of total retail revenue from July through September, Michael P. Niemira, ICSC's chief economist, estimates.

Merchants' come-ons are great news for deal seekers - if they have the means to spend.

Lee Ballas lost her job two years ago when Ford Motor Co. laid off thousands of workers. Today, she's still looking for a job and estimates she's cut her shopping budget by half.

The 55-year-old from Grosse Ile, Mich., said she plans to spend about $200 this year to get her two grandchildren - ages 7 and 11 - ready to go back to school. That's 60 percent less than in previous years.

On the chopping block? Clothing and gadgets.

"I'm cutting back," she said. "I'll buy less clothing, and I probably won't get them the latest and greatest tech thing."

June's results, which cover the period from May 30 through Saturday, were inflated by a late Memorial Day weekend, which lifted results by 1 percentage point last month and deflated May by the same amount, according to Niemira.

After ramping up spending surprisingly in the first quarter, shoppers have hunkered down since April, going out to stores only to buy necessities. The volatile economic environment has made business uneven from week to week, and economists don't see that changing until American businesses start making significant hiring.

Uncertainty is growing as evidence mounts - from disappointing housing data to sluggish hiring - that the recovery is stalling heading into the second half of 2010. And that is when the benefits of most of the government's stimulus spending will begin to fade.

Consumers also saw their retirement funds erode further as the Dow Jones Industrial Average has fallen from its late April peak.

"If we don't get employment growth, it will continue to be choppy, and worry will grow," Niemira said.

Analysts say it was hard to discern clear trends in June's figures. Department stores like Macy's and J.C. Penney Co. fared much better in June than mall clothing chains, a sign that the department stores' push for exclusive merchandise is paying off.

This fall, Britney Spears and Madonna will vie for back-to-school dollars as they launch their own fashion collections. The Spears-designed line for Candie's is exclusive at Kohl's Corp., while Madonna and her 13-year-old daughter Lourdes, has designed a line called Material Girl, to be exclusively sold at Macy's.

Such celebrity launches will put more pressure on teen merchants, including American Eagle Outfitters Inc., The Buckle Inc., Hot Topic Inc. which reported revenue declines for June.

American Eagle is fighting back with the new phone offer, but there's a catch. The new phones - the Droid Eris by HTC, the BlackBerry Curve and the LG Ally phones - are only available with new two-year service plans. More than 40 phones are available across multiple carriers, including AT&T, Sprint, Verizon and T-Mobile. The iPhone is not included.

Meanwhile, discounters such as Target Corp. will be battling it out with Wal-Mart Inc., the world's largest retailer, which has stepped up discounts. But dollar stores are also upping the ante - Family Dollar has launched its own children's clothing collection called Kidgets that features three-piece toddler boys' and girls' sets for $8.

Staples is pushing dollar and penny deals every week such as pencils for a penny and gluesticks for $1.