Financial Times FT.com

US shoppers stick to the bargain basement

By Daniel Pimlott in New York

Published: May 8 2008 17:47 | Last updated: May 8 2008 20:27

US shoppers continued to veer towards cheaper stores and essential goods and away from discretionary items in April but brought some relief for retailers after a poor start to the year.

Same-store sales, a key retail measure of sales in stores open at least a year, rose by 3.3 per cent against expectations of a 1.1 per cent rise according to Retail Metrics, which analyses shopping trends.

The rise suggested a better period for shops after weaker sales over the past few months, but still pointed to a consumer who is contending with record oil bills and falling home prices.

Wal-Mart, the world’s largest retailer, and Costco, the warehouse club, in particular benefited from the upturn in sales, in a sign that cost-conscious consumers are turning increasingly to discount retailers and bulk buying as the US economy slows.

Teen apparel retailers bucked the trend among clothes retailers to receive a boost from warmer April weather.

Over a two-month period, retail sales growth was much weaker, after sales fell in March. This year so far same-store sales have increased 1.1 per cent on average every month, according to Retail Metrics. That comes after 2.6 per cent average monthly growth in 2007 and 3.7 per cent growth in 2006.

Ken Perkins of Retail Metrics said: “The numbers were slightly encouraging and beat very modest expectations. But I don’t think we are out of the woods yet – there’s just too many headwinds that consumers are facing.

“The broader trend is that consumers are retrenching and spending more and more dollars on non discretionary things they have to have,” said Mr Perkins.

Wal-Mart said same-store sales rose 3.2 per cent excluding fuel sales, beating the high end of the retailer’s own forecasts of 1-3 per cent growth, as well as analysts’ predictions of 2.1 per cent gain.

Wal-Mart said that the “economy continues to get tougher” and customers are struggling to stretch their money to the next paycheck.

Eduardo Castro-Wright, Wal-Mart‘s chief executive for US stores, said: “As money gets tighter for them toward the end of the month, sales drop more than we have seen in the past.” The company said that sales of home furnishings remained weak but that it had been lifted by sales of groceries.

Costco same-store sales were up 8 per cent compared with the company’s forecasts of 6.1 per cent growth, an indication that consumers are buying goods in bulk increasingly.

Gap and Chico’s, which both sell mid-range clothing, saw sales drop 6 per cent and 15.5 per cent respectively.

Target posted a 3.1 per cent gain in same-store sales but missed the 4.5 per cent estimate, as consumers avoided pricier items such as jewelry.

Retailers are expecting a boost this year as consumers receive tax rebates as part of the package of moves put forward by President George W. Bush and Congress this year in an effort to boost the economy.

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