JC Penney, the department store chain, yesterday became the latest mid-range US retailer to report a fall in profits, as consumers cut back on purchases or opt instead for cheaper discount stores.
The retailer's secondquarter net income decreased 35.7 per cent to $117m, while sales fell 2.8 per cent to $4.28bn.
This week, Macy's, the largest US department store chain, Kohls and Nordstrom all reported declining profits and sales.
The performance of the middle-tier stores contrasted sharply with this week's strong results from Wal-Mart's Supercenters and discount stores, which reported increased traffic and an increase in transaction size. Its US store division reported a 10.8 per cent increase in operating profits, with net sales up 8.5 per cent at $64bn.
TJX, which operates discount fashion stores, also reported strong results this week.
In spite of the stronger performance of discount outlets, executives at Macy's and Nordstrom both maintained that their stores were suffering more from the general slowdown demand, rather than a move by customers to shop at cheaper outlets.
Karen Hoguet, chief financial officer at Macy's told investors that "we don't think that [trading down] is what is happening. We just think customers are buying less".
Blake Nordstrom, president of Nordstrom, said the fall in sales at its up-market fashion stores reflected a "highly promotional" environment.
"Customers are more cautious today. However, we see no evidence that they are trading down."
The leading US retailers are waging an aggressive battle for "back to school" sales, the second most important shopping season after the Christmas holidays. JC Penney, for instance, is launching special "doorbuster" sales this weekend, and offering free shipping for online orders.
However, Mike Ullman, Penney's chief executive, said that the company was facing customers who were often already at the limit of their consumer credit, and that this had not been significantly affected by the receipt of federal stimulus tax rebates in the second quarter.
"Consumer credit is at high levels. The stimulus package may have played that down a bit, but most of the stimulus package went to the increase in fuel prices," he said.
