Lured by Big Markdowns, Shoppers Return to Stores

Americans finally went shopping last month, lured into stores by discounts on merchandise that had languished during a disappointing and unusually cool spring.

The nation’s retailers on Thursday said that sales picked up in July thanks to heavy markdowns used to move out everything from sundresses to air conditioners to make room for fall lines.

A separate report released Thursday supported the spring cooling of consumer spending. The Federal Reserve Board reported that for the first time in four years, American consumers did not increase their debt burden in June.

U.S. consumer installment credit was unchanged in June after rising a revised $2.5 billion at a 2.5% annual rate in May, the Fed said.

It was the first time since May 1993--when consumer credit shrank by $700 million--that installment credit failed to grow month by month.

Among the nation’s largest retailers, Wal-Mart Stores Inc. said total company July same-store sales rose 6.0%, and Dayton Hudson said sales rose 5.6%, both in line with analysts’ forecasts. Kmart Corp. gained 9.2%, and Federated Department Stores Inc.--parent of Macy’s and Bloomingdales--rose 8.6%, each slightly above forecasts.

Patrick McCormack, analyst at Alex. Brown & Sons, said his company’s same-store 100 index rose 5.4% in July, a “little better” than the expected 5.0% rise.

He and others agreed that sales last month benefited from comparison to soft July 1996 data, when shoppers stayed home to watch the Olympics, plus fairly heavy clearance activity.

“So it’s a good month, but you probably don’t need to get too excited about it because it’s not too important from a profit standpoint,” McCormack added.

Separately, the Labor Department reported that new applications for unemployment insurance totaled a seasonally adjusted 300,000, up from 275,000 during the week ended July 26, when jobless claims fell to a 23-year low. The jobless report and the retailers’ sales figures were further evidence that the economy is growing at a moderate pace.

It was a cold and dismal spring for retailers, who were unable to get shoppers into a buying mood despite a soaring stock market, high levels of consumer confidence and low unemployment levels.

The sales slump began to turn around in June as the weather improved and stores began to slash prices. Once July came, shoppers were out in force, enticed by the big discounts--some retailers lopped 70% off spring and summer merchandise.

Specialty retailers, however, continued to struggle, although there were some signs of recovery for such troubled merchants as Limited Inc. and Talbots Inc.

Limited said same-store sales rose 1% and total sales rose 9%. Sales were helped by strength in its Intimate Brands division, which includes Victoria’s Secret and Bath & Body Works.

Sales from stores open at least a year, known as same-store sales, are considered the most accurate measure of a retailer’s strength. They exclude sales from stores that have been closed and from new stores, which often have disproportionately strong sales.

Despite the shaky start during the spring, analysts said the strong July sales will lift second-quarter earnings and the outlook for retailers in the coming months is good.

“This sets the stage for the rest of the year,” said Joseph Ronning, a retail analyst at Brown Bros. Harriman.

The Salomon Bros. retail index, the investment firm’s barometer of sales performance, rose 6.1% last month after a 4.6% gain in May. It was up 2.3% in July 1996.