Retail sales fall in August, but drops are easing

Shoppers limited their back-to-school purchases and stayed focused on necessities in August, resulting in the 12th straight month of declining sales for retailers. But there were signs the holiday season could be less dismal than feared.

Despite the weakness many reported, retailers overall did better in August than analysts expected. Some lower-priced chains, such as TJMaxx and Old Navy, even saw sales rise compared with a year earlier, though sales slipped at upscale stores.

Stuart M. Porterfield, managing principal of Advisor PT, a Richmond-based firm that does consulting for financial advisers, said shoppers are still concerned with unemployment and falling home values, concerns that are reflected in spending habits.

"Consumers are having to cut spending, increase savings if possible and prioritize expenditures," he said. "Don't count on consumers to ratchet up spending in the near term."

He said consumer spending won't bounce back until next year.

David Urban, interim dean of Virginia Commonwealth University's business school, said shoppers' curtailed spending habits will continue until the job market rebounds.

"People are still skittish about spending money, even in back-to-school season," said Urban, a professor of marketing.

Urban warns that these issues mean retailers could be in store for a tough holiday season.

"Are people all of a sudden going to unleash a tsunami of purchasing after months of holding back? I doubt it, and you know that has retailers of all types plenty scared," he said.

Porterfield agrees.

"This holiday season will be tough for a lot of retailers," he said.

There have been encouraging reports from the housing and manufacturing sectors that the economy is stabilizing, but any recovery will have to include an uptick in consumer spending because it accounts for about 70 percent of economic activity.

"It's still weak in the broad trend, but it is considerably stronger than it has been in some time," said Michael Niemira, the International Council of Shopping Centers' chief economist.

A monthly compilation of 32 retailers' sales by the ICSC and Goldman Sachs showed that sales in established stores fell 2 percent this August compared with August last year. That was better than the drop of 3.5 percent to 4 percent that analysts had forecast.

The better-than-expected sales results eased some analysts' concern that the holiday season will be as bad as last year.

"The core issue here is pent-up demand; that's what we'll be talking about this holiday season," Niemira said. "I think August is the start of this transition to better times for the industry."

Staff writer Louis Llovio and The Associated Press contributed to this report.