US retailers including Wal-Mart Stores Inc and Target Corp, the two largest discount chains, are facing slower-than-expected sales gains during the back-to- school season as rising gasoline prices erode shoppers' budgets.
The International Council of Shopping Centers, which represents mall owners, reduced its estimate yesterday for August after Wal-Mart cut its forecast for sales at stores open at least a year. Sales growth is probably slowing to as little as 2.5 percent, down from as much as 4 percent at the start of the month, said Michael Niemira, chief economist for the group.
Discounters such as Wal-Mart are more at risk because lower-income shoppers tend to curb spending the most as the price of gas rises, he said. Sales began slowing during the past two months with gas prices 26 percent higher in July and retailers facing tougher comparisons to the same period a year earlier, when consumers were flush with money from tax credits.
"We're likely to see a continuation of this softer pace," said Niemira, who is based in New York and has been following retailing since 1984. "The expectation was that back-to-school wouldn't be particularly strong, and not particularly weak," he said.
The August through September back-to-school season, when merchants get about one-sixth of revenue, is the second-biggest selling period after Thanksgiving to Christmas. A slowdown in consumer spending, which accounts for about two-thirds of US economic activity, may signal a decline in economic growth.
"It's definitely symptomatic of a period of economic weakness," said Sarah Henry, an analyst at Sovereign Asset Management in Berwyn, Pennsylvania, whose US$2 billion in assets include Wal-Mart shares.
"Their demographic is the middle market, middle class," she said.
Wal-Mart, the world's biggest retailer, said in a recorded message Monday that August sales will be little changed or rise as much as 2 percent, which would be the smallest gain in 17 months. Target also said in a message it expects results to be unchanged or to increase as much as 2 percent.
Niemira, who tracks 76 retail chains in his monthly survey, said Wal-Mart's sales decline 0.77 percentage points for every 10 percent rise in gas prices. That compares to 0.36 percentage points for the industry as a whole.
Ericka Longley, 32, walked out of a Wal-Mart in Greensboro, North Carolina, on Monday without jeans and other school clothes she hoped to buy for her daughter, Destinie, who's starting kindergarten.
"Prices for children's clothing are outrageous and gas prices are ridiculous," said Longley, a tissue-paper factory worker. She expects to spend 25 percent less on clothing for Destinie this year in part because of higher gas prices.
Consumer spending slowed to a 1 percent annual rate in the second quarter, the weakest pace since the 2001 recession. The slowdown from April through June restrained the economy, which grew at a 3 percent rate, the weakest in more than a year.
Economists at Lehman Brothers Inc and Citigroup Global Markets Inc are among those who lowered economic growth forecasts within the last week because of higher fuel prices.
Lehman Brothers cut its second-half growth estimate to 3.8 percent from 4.5 percent.
"Recent energy costs have pointed to a building drag on real GDP growth of close to three-quarters of a percentage point already," said Steven Wieting, a senior economist at Citigroup.
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