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Wal-Mart, Retailers At War With China, Recession


Clothing stores gear up for back-to-school season.

As carefree summer fun is plowed under by back-to-school depression, retail chains are desperately searching for an angle that will bring in the crowds. The pre-fall sales are especially important for Wal-Mart (WMT), whose July same-store sales fell short of expectations, rising only 3%.

Despite sales falling 11%, Gap (GPS) raised its second-quarter earnings and full-year profit forecasts.

With rebate checks practically tapped out and the kids at their whiniest, how can retail giants entice beleaguered consumers?

With gas topping $4 per gallon, rising unemployment rates and a declining housing market, shoppers haven't exactly been flocking to stores. No one's in the mood to throw money away on anything remotely frivolous. And as everyone knows, retailers suffer most when consumers are forced to cut back.

Inflation on labor and shipping costs from China -- the country responsible for manufacturing roughly one-quarter of all clothes sold in the US -- is also hitting retailers hard. Though firms like Wal-Mart and Target (TGT), which order in bulk and are willing to turn a blind eye to less-than-ideal child labor conditions, rising costs are cutting other clothing companies (like JC Penney (JCP), Macy's (M) and Sears (SHLD)) off at the knees.

Consumers can expect to shell out extra bucks at most stores, since retailers are raising prices to cover increased overhead. On the plus side, JC Penney and American Eagle Outfitters (AEO) claim they won't be inflating prices for the back-to-school season.

I guess we'll have to believe it when we see it.
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