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Is the Shopaholic Extinct?


Consumers, retail still trading down.

Battered consumers are trading down as the recession deepens.

That's bad news for the economy, because consumer spending represents about two-thirds of the gross domestic product. Penny-pinching consumers are good news for Wal-Mart (WMT), but an ongoing challenge for Costco Wholesale (COST), which cut prices in an effort to gain market share.

Wal-Mart said same-store sales, or stores open at least 1 year, rose 2.1% in January as consumers looked for bargains and good prices on groceries and health products. Sam's Club, the company's warehouse chain, reported strong sales of food, pet supplies and baby-care items.

The results beat Wal-Mart's own forecast that sales would be flat or rise 2%. Analysts expected sales to increase 1.1%. That's not a thumping victory, but a triumph against the generally dismal retail outlook. Wal-Mart's international sales fell 7%, whacked by the stronger dollar.

Costco warned that earnings this quarter will dip below analysts' expectations because the warehouse chain slashed prices on non-food items during the holiday season in an effort to boost market share. Rival Target (TGT) also warned that markdowns would knock fourth-quarter sales below forecasts.

Battered consumers are saving more. US household debt -- which has increased since the Federal Reserve began tracking it in 1952 -- dipped for the first time in the third quarter of 2008. At the same time, US consumer spending growth slowed for the first time in 17 years.
Many economists expect the savings rate (or the difference between earning and expenditures) to climb to 3% to 5% in 2009. Goldman Sachs (GS) expects the 2009 savings rate could go as high as 5% to 10%.

As the savings rate rises, spending is likely to shrink. Many economists expect the gross domestic product to fall at an annualized rate of at least 4% in the fourth quarter - the sharpest drop in about 25 years.

Clothing retailers were hammered as consumers made do with the things hanging in their closet. Gap (GPS) said sales fell 23% at stores open at least a year, pulled down by a 34% drop at the company's sinking Old Navy brand.

Hanky-panky duds and accoutrements look more like an unaffordable luxury for increasing numbers of consumers. Limited Brands (LTD), parent of Victoria's Secret and Bath & Body Works, reported a 9% drop in sales.

TJX Companies (TJX), operator of TJX stores, reported a 4% drop in sales. But Buckle (BKE) exceeded estimates with a 15% sales increase. The company sells mid- to higher-priced causal apparel such as outerwear, tops, pants, shoes and accessories to what the industry calls "fashion-conscious" 12- to 24-year-olds. The company has reported double-digit same-store growth for 18 months, suggesting that many kids and young adults believe they must have brand names such as Fossil, Lucky, Dr. Martens, Polo and Silver despite the sour economy.

The outlook for department stores remains dismal. Macy's (M) recently announced that it would cut 7,000 jobs and expects the economy to remain sour. However, the store believes its new strategy of matching merchandise with regional tastes will increase sales.

Upscale retailers Saks (SKS) and privately held Neiman Marcus reported sales drops of about 23% each, and see no immediate turnaround.

Carrie Bradshaw, the shoe-aholic played by actress Sara Jessica Parker in the TV series Sex and the City, is looking more and more like a candidate for the Smithsonian. With luck, she won't meet Ma Joad from The Grapes of Wrath on the road.
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