U.S. retailers rely on deep discounts to win back-to-school shoppers

A signage offering big savings in the back to school supply department is pictured at a Target store in Los Angeles, California August 18, 2009. REUTERS/Fred Prouser
Dhanya Skariachan

By Dhanya Skariachan NEW YORK (Reuters) - Many U.S. retailers reported stronger-than-expected August sales on Thursday, but many of them had to resort to deep discounts to attract back-to-school shoppers. The unusually high level of discounting raised concerns about margins for this quarter. It also showed that apparel chains might have to keep offering bigger incentives at a time when consumers are spending more on their homes, cars and other durable items. The level of discounting "was certainly higher than last year," said Ken Perkins, president of consulting firm Retail Metrics. "They seem to be above the norm. That was emblematic of just the lack of demand for back-to-school." The back-to-school season is the second-biggest selling period of the year for U.S. retailers, behind the winter holidays. Same-store sales for the nine U.S. chains that reported August sales rose 2.9 percent, mainly hurt by Gap Inc and L Brands Inc . Wall Street had expected a 3.2 percent increase, according to Thomson Reuters I/B/E/S. Retailers were primarily hurt by weak mall traffic, and a highly promotional environment at the beginning of August. "What you see is very strong durable goods spending" hurting demand for items like apparel, said Michael Niemira, chief economist of the International Council of Shopping Centers, which expects same-store sales to rise about 4 percent in September. Many consumers are buying cars and houses to take advantage of still-low interest rates but are holding back on shirts, dresses and shoes. In the run-up to the year-end holiday season, this does not bode well for many retailers. The Standard & Poor's Retail Index was up 0.6 percent on Thursday morning, outpacing a 0.3 percent gain for the broad S&P 500 . Same-store sales are an important measure of a retailer's performance because they strip out the effects of store openings and closings. Fewer than a dozen U.S. retailers report monthly sales, down from a peak of 68 in 2006. In the years since, big names such as Macy's Inc , Wal-Mart Stores Inc and Best Buy Co Inc have dropped out of the same-store sales index. L Brands' same-store sales rose 2 percent in August, falling short of the analysts' average estimate of a 2.2 percent gain. The company is expecting low single-digit percentage increase for September. Mall-based apparel chain Cato Corp's same-store sales fell 2 percent, while analysts expected a 3 percent drop. "We remain cautious in regard to the remainder of the year," Chief Executive Officer John Cato said in a statement. Gap, which sells clothing, accessories and personal care products through the Gap, Banana Republic, Old Navy, Piperlime, Athleta and Intermix brands, reported a 2 percent gain in August same-store sales, slightly below the 2.2 percent gain analysts had expected. Buckle, which caters to teenagers, reported a 1 percent rise, beating estimates of a 0.4 percent increase. Teen-focused retailer Zumiez Inc posted same-store sales gain of about 3 percent, ahead of analysts' estimate of 2.5 percent. Costco's same-store sales, including those of gasoline, rose 4 percent, just beating analysts' expectations of a 3.8 percent gain. Demand was strong for health and beauty aids and food, but weak for electronics, the largest U.S. warehouse club chain said. Stein Mart Inc also topped same-store sales forecasts for the month, reporting a 3.8 percent rise on strong demand for everything from linens to women's dresses. Walgreen Co , the largest U.S. drugstore operator, reported a 4.8 percent increase, while analysts had expected only a 2.8 percent rise. (Additional reporting by Aditi Shrivastava and Maria Ajit Thomas; Editing by Lisa Von Ahn)