Wary shoppers give retailers only modest gains

NEW YORK — Deep discounts on summer leftovers and hot weather drove shoppers into malls in July, but they remained choosy, resulting in only modest gains.

The sluggish spending raises worries about the health of the back-to-school season as Americans step up saving amid a stalling economic recovery. Already, retailers like teen specialists Abercrombie & Fitch Co. and American Eagle Outfitters Inc. are offering generous discounts on new jeans to lure shoppers in the heat wave that hasn't let up since June.

As stores reported their results Thursday, there were some clear winners. Costco Wholesale Corp. and Victoria's Secret parent Limited Brands Inc. had robust gains. Macy's Inc. posted a strong increase, and the CEO said that the back-to-school business was off to a "great" start, helped by its newly launched Material Girl fashion collection created by pop star Madonna and her 13-year-old daughter, Lourdes.

Still, those figures are being compared with dismal spending in July 2009. And a majority of the stores reporting results came in below Wall Street projections, according to Thomson Reuters.

Teen clothing stores were among the hardest hit, with The Buckle Inc. and The Wet Seal Inc. suffering declines.

The figures are based on revenue at stores opened at least a year and are considered a key indicator of a retailers' health.

"Consumers are being pressured," said Karen Ghaffari, managing director at Fitch Ratings." We're in a recovery, but we're in a muted recovery."

Ken Perkins, president of research firm RetailMetrics, predicts stores are "going to have to be very promotional all the way through." He added that consumers, particularly in the low- to middle-income brackets, are in a "buy now, wear now" mode because they don't have a lot of discretionary income.

The International Council of Shopping Centers, based on a tally of 31 retailers, posted a 2.8 percent increase in July, below the 3 to 4 percent pace that was expected. That compares with a 5 percent drop a year ago.

July marks the fourth straight month of weak spending after retailers got a surprise bounce earlier in the year amid a rising stock market and government incentives. But confidence is falling as worries grow that the economic recovery is stalling. An unemployment rate that's still stuck at almost 10 percent and tight credit are making shoppers focus on saving more and being picky about what they buy.