Don't Give Up On Retail

Carl Gutierrez
September 3, 2009

Sales in the retail sector continued to decline in August, but they didn't fall as much as feared.

The back-to-school season wasn't enough to entice cash-strapped Americans away from strict necessities. On Thursday the International Council of Shopping Centers' monthly compilation of 32 retailers revealed retail sales in August fell by 2% year-over-year. It was the smallest decline since September 2008, an encouraging sign as analysts expected a drop of up to 4%.

Retail investors responded positively to the news, pushing up big-box stores like Wal-Mart ( WMT - news - people ) and Target ( TGT - news - people ) by 1.6% in midday trading. The Gap ( GPS - news - people ), which owns Banana Republic and Old Navy, rose 7%, while Urban Outfitters ( URBN - news - people ) gained 4.5%.

Also, the SPDR S&P Retail ( XRT - news - people ) exchange-traded fund rose 1.8%. Performing below expectations was high-end retailer Saks ( SKS - news - people ), yet it still managed to jump 4.6%.

Claire Gruppo, cofounder and managing director of investment bank and M&A firm Gruppo, Levey and Co., found that consumers, particularly in tough economic times, are trying to get more bang for their buck. (See "Consumers Trade Down.") Therefore, the "back to school" season will likely be stretched out as parents wait for items to go on sale.

Although the economy appears to no longer be in recession, unemployment is expected to remain high well into 2010. Gruppo said that the retail environment will remain difficult until Americans start going back to work. (See "Americans Still Out Of Work" and "Manufacturing Recovers.")