Costco, Nordstrom lead gains in October retail sales

NEW YORK — Two of the Seattle area's biggest retailers led the sector in improved monthly sales gains for October, a relief for merchants as they head into the holiday season. It was the industry's second consecutive monthly sales gain after more than a year of declines.

Costco Wholesale said Thursday that sales at stores open at least a year climbed 5 percent in October, helped by strengthening foreign currencies. Analysts surveyed by Thomson Reuters had expected a 4.7 percent gain.

Sales of nonfood merchandise continued to improve at the Issaquah-based retailer, and food sales were steady, although Costco continues to suffer because of food deflation.

A 6.5 percent monthly gain for Seattle-based Nordstrom was a surprise — more than double the 3 percent analysts expected — and an indication that affluent shoppers might be loosening their purse strings.

Overall, U.S. retail sales at stores open at least a year rose 2.1 percent, according to an International Council of Shopping Centers-Goldman Sachs tally, compared with a 4.2 percent drop in October 2008.

Other bright spots nationally included Gap, TJX, which operates T.J. Maxx and Marshalls, and Saks, which operates Saks Fifth Avenue and posted a 0.7 percent sales gain, much better than the 3.6 percent drop that Wall Street had expected.

"Improved macro conditions are leading shoppers to spend more on discretionary purchases," said Ken Perkins, president of retail research firm Retail Metrics. "This should bode well for Christmas."

The October results marked the industry's strongest performance since July 2008 and beat estimates for a 1 percent gain. October's gain followed a surprising 0.6 percent increase in September.

October's reading excludes results from Wal-Mart Stores, the world's largest retailer, which stopped issuing monthly sales reports earlier this year. Seattle-based Starbucks also has stopped issuing monthly sales reports.

Sales at stores open at least a year are considered a key indicator of a retailer's health because they exclude the effects of store expansion.

Business was helped by a number of factors. Cooler weather helped boost sales of plaid shirts, leggings and boots. And early holiday discounts also may have drawn shoppers to get a head start on Christmas buying, Perkins said. Those with money are now becoming a little more willing to spend it, soothed by improving signs in housing and the stock market.

But retail-sales figures are starting to look better mainly because they are being compared with the free fall in spending a year ago.

A number of stores, including Gap and teen merchant Aeoropostale, raised their profit outlooks. They have slashed inventories to respond to reduced demand. But BMO Capital Markets analyst John Morris said many stores have reached a point where they have "gotten too good."

"They planned so conservatively that they ran out of sales goods," hurting sales at the end of the month, Morris said.

Discounters and wholesale-club operators continue to benefit as shoppers still want low prices and necessities.

Target posted a 0.2 percent decline last month; analysts had expected results to be unchanged from a year ago. The retailer said that sales of necessities like health-care products rose, but electronics and sporting-goods sales were weaker.

Among department stores, Macy's posted a 0.8 percent decline. J.C. Penney had a 4.5 percent sales drop, worse than the 2.3 percent decline that analysts anticipated. The company said that women's apparel and shoes were top performers.

The big question is whether shoppers will be motivated to buy holiday goods at full price knowing that if they wait too long, that coveted item might be sold out, or if they will hang back and wait for discounts.

Clearly, there's plenty of concern about the fragility of U.S. consumers who continue to grapple with tight credit and weak employment. More than 6 million additional people were jobless in September 2009 than in September 2008.

The Labor Department reported Thursday that the number of newly laid-off workers filing claims for unemployment benefits last week fell to the lowest level in 10 months, evidence that job cuts are easing. But employers are reluctant to hire, and economists expect unemployment to tick up to 9.9 percent when October's figure is reported today.

As a result, consumer confidence has been choppy, rising above its February low but still far from levels that would mean the economy is on solid footing.

Seattle Times reporter Melissa Allison contributed to this report.