Wal-mart's disappointing October could bring holiday price wars

NEW YORK – A disappointing sales performance and outlook from Wal-Mart Stores Inc. raised the possibility of price wars this holiday season — a boon to consumers but a troubling prospect for the entire retail industry.

"The news from Wal-Mart is definitely discouraging," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. "They are going to be very price aggressive. And it is going to have an effect on everyone. It is going to force other retailers to cut their prices, which in turn will squeeze their profit margins."

The world's largest retailer, whose sales were dragged down by a failed women's fashion strategy that went too trendy and by disruptions from a store remodeling program, said Thursday it will be using price as a weapon in such areas as toys and electronics to drive holiday sales.

The latest development from Wal-Mart came as the nation's retailers reported mixed October sales, the result of consumers taking a breather after going on a buying spree in September.

Other retailers reporting lackluster results included BJ's Wholesale Club Inc. and Pacific Sunwear of California Inc. Meanwhile, department stores scored again, with robust results from such companies as Federated Department Stores, J.C. Penney Co. Inc. and Saks Inc.

The International Council of Shopping Centers-UBS sales tally rose 3 percent in October, less than the 4 percent gain in September. The tally is based on same-store sales, or sales opened at stores opened at least a year. Same-store sales are considered the best indicator of a retailer's health.

Still, Perkins believes shoppers will regain their stride during the holiday shopping season. Consumers have been resilient even when energy prices soared earlier in the year. The decline in gas prices that began in late summer has helped ease the financial pain consumers have felt.

But consumers' willingness to spend depends largely on their own job security. While the job market has been steady, recent monthly reports from the Labor Department have showed slower growth. And consumers' confidence, while still high, weakened in October, dragged down by their concerns about the job market, according to the Conference Board.

The latest report on jobless claims released Thursday raised concerns about whether the slowing economy is finally pushing companies to lay off workers. The Labor Department said the number of newly laid off workers filing claims for unemployment benefits unexpectedly surged last week to the highest level in more than three months.

Wal-Mart, which should have benefited from falling gasoline prices, reported a meager 0.5 percent gain in October same-store sales; it was hurt by its namesake division, which eked out a 0.3 percent gain. Sam's Club had a 2.0 percent same-store sales gain. A big problem at Wal-Mart was that it overstocked stores with too many trendy items like skinny jeans, officials told Wall Street analysts.

Wal-Mart estimated that same-stores sales should be unchanged in November from a year ago. "As in September, apparel sales, particularly in women's apparel, were softer than expected," said Tom Schoewe, executive vice president and chief financial officer at Wal-Mart in a statement.

But he noted the company's aggressive advertising of its discounts, or what it calls rollbacks, should help "reinforce Wal-Mart's price leadership position."

Schoewe added that the company is already seeing a "significant lift in unit volume" from its move in mid-October to discount more than 100 holiday toys. "In electronics, another dynamic category for the holiday season, we have several initiatives planned to drive holiday sales," he said.

Meanwhile, rival Target had a solid 3.9 percent gain in same-store sales, though the figure was slightly below the 4.2 percent estimate from Wall Street.

BJ's had a 0.7 percent decline in same-store sales, below the 0.9 percent forecast. The company said falling gasoline prices dampened sales at the retailer, which sells gasoline.

Department stores, which have benefited from consolidation and an improved fashion offerings over the last several months, recorded robust gains again.

Federated which acquired May Department Stores Co. last year, posted a hefty 7.7 percent gain in same-store sales, beating the 6.2 percent estimate from Wall Street. Same-store sales include only Macy's and Bloomingdale's.

Federated said it expects same-store sales to increase by 3 percent to 5 percent in November as well as in the fourth quarter as a whole.

Penney had a same-store sales increase of 8.1 percent, beating the 6.2 percent estimate.

Saks Inc., which shed its mid-brow department stores to focus on its luxury business, posted a robust 9.2 percent gain in same-store sales. That figure well exceeded the 3.6 percent estimate.

Upscale Nordstrom Inc. had a 10.7 percent increase, beating the 6.2 percent estimate.

Limited enjoyed a 9 percent gain in same-store sales, better than the 7.2 percent Wall Street expected.

Gap Inc., which is trying to turnaround sales with a new merchandising strategy, reported a 7 percent drop in same-store sales, worse than the 2.4 percent expected.

Teen retailers had a mixed performance.

Pacific Sunwear posted a 7.1 percent drop in same-store sales, worse than the 5.4 percent decline Wall Street expected. On Wednesday, American Eagle Outfitters Inc. reported a same-store sales increase of 8 percent, a bit below the 9.9 percent estimate. The teen retailer said that the holiday collection, which arrived in the last week of the month, has met with positive consumer response.