Back-to-School Sales: *Weaker Than They Appear

Last week, I noted that the Back-to-School Sales were, at first glance, Surprisingly Strong.

I should have known better.

It turns out that a the retail data came with a big fat *asterisk, which (as happens all too often) presented a very misleading view of the data.

Why? Well, we track these numbers so as to have a good read on the strength of the consumer, and how sustainable their present spending pattens are. Given that the US consumer is 70% of the economy, their actions are quite significant.

That’s what makes today’s asterisks so significant: Much of the volume gains came via one offs, unusual factors, and huge discounting, with retailers sacrificing margin in exchange for volume:

"But chains like Wal-Mart Stores and Macy’s, which led the pack, have
slashed prices and dangled large discounts to lure customers, which
could hurt profits and mask troubles that might spill out during the
crucial holiday season."

For many retailers, the August and September same-store sales period
have a very high correlation with fourth-quarter results. Its  a 91%
for department stores, 86% for discounters, and 84% for teen retailers,
according to Bear Stearns analyst Christine Augustine.

Indeed, I am going to make a (not-so) bold forecast: This holiday season, starting on Black Friday, we will see big and early discounts. The retailers know this works (for now), and the consumer has been trained to look for them. Hence, the pressure on margins will be significant. This will also be good for low cost overseas manufacturers — China, Viet Nam, Sri Lanka, etc.

What other asterisks are out there for retailers?

* Florida and Texas pushed back the start of their school openings by several weeks this year, inflating the August sales of teenage-oriented retailers (Abercrombie & Fitch, Aeropostale)

* Tax-free shopping days —  formerly a single day or week, have been extended through much of August. Abercrombie (ANF) admitted that without the delay of tax-free shopping days in Florida and
Texas, its sales would have risen just 1% rather than 5%.

* The International Council of Shopping Centers (ICSC) noted that August 2007 saw a 2.9% increase — relatively
weak compared with August 2006’s 3.8% sales gains.

* Marketwatch reported that "the hottest August weather in 113 years also sent shoppers buying air conditioners and other hot-weather items as retailers cleared out their summer merchandise in a transition to fall goods, said weather consulting firm Weather Trends International

* Retail slumming is in full effect: Discounters, rather
than full-price chains, reported the strongest performance in August ’07.
At stores open at least one year, sales rose 6.1% at Target (TGT) and 3.1% at Wal-Mart (WMT).

* Gasoline prices below $3 a gallon made consumers feel more comfortable about shopping.  However, since then, Oil has ticked back up towards its highs, with gasoline prices sure to follow

* The NYT reported that Wal-Mart said "Consumers flocked to its stores for
bedding, apparel and towels, categories that the chain had struggled
with for much of the year." Why the sudden reversal of fortune? Big discounts.

* Who else was the big winner? Luxury chains. Sales rose 6.6% at Nordstrom and 18.2% at Saks.

* Whose struggling? Full priced department stores. Sales fell 4% at
J. C. Penney, 5% at Dillard’s and 0.6% at Kohl’s.

But don’t take my word for it:  listen to what the retailers execs are saying themselves:

"Interviews with retail chief executives — generally an optimistic, cheerleading bunch — found them expressing serious reservations about the outlook for consumer spending over the next several months. “It will be tougher than it is now,” said Myron E. Ullman, chief executive of J. C. Penney, referring to shoppers’ anxiety about the economy. “I do not see anything on the horizon that will turn this around.”

The chief executive of Staples, Ronald L. Sargent, described himself as “nervous” about the holidays; “maybe cautious is the better word,” he said. “The economic forecast is causing people to delay buying what they can delay buying. They are not running out to get the latest all-in-one H.P. printer.”

That’s a big surprise, as these guys are usually in the the "lemonade from lemons" crowd.


Back-to-school boost for retailers

The Seattle Times, Friday, September 7, 2007 – Page updated at 07:36 AM

Retail sales led by back-to-school, luxury shoppers
Andria Cheng
MarketWatch, 3:49 PM ET Sep 6, 2007

Retail Sales Rise, but Data May Mask Troubles
NYT, September 7, 2007

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What's been said:

Discussions found on the web:
  1. Ross commented on Sep 10

    This just in, sales tax receipts from the third fastest growing county in the U.S. (a suburb of Dallas ) are down 5.4% year over year.

  2. Strasser commented on Sep 10


    We have been shopping for an appliance in the past couple weeks and in each store there is either a lack of sales people or sales people who are flocked together talking among themselves… not a glut of activity in the PNW.

  3. The Financial Philosopher commented on Sep 10

    Great point, Barry. From my perspective, I would paraphrase your post by saying that, if there is no asterisk next to the data, the prudent investor will place their own asterisk and act (or not act) on their best judgment — not completely on the data.

    As Plato said, “A good decision is based on knowledge — not on numbers.”

    Have a great week…

  4. Owner Earnings commented on Sep 10

    Been waiting for this news to get more notice…

  5. spencer commented on Sep 10

    the discounting you are talking about is not
    unusual, it is what retailers have been doing for years. The unusual thing was that they had tried to get away from it over the past year. All you are telling me is that discounting has returned to normal.

  6. SPECTRE of Deflation commented on Sep 10

    Lots of duct tape being bought to keep Cramer’s head from blowing up I imagine. Wrap tighter boyz and girlz. What a blowhard shill!

    On the Retail Numbers, pure BS, and we all know it. Barron’s, delivered this AM, has two headlines on the cover which point to the fact of La-La Land reporting.

    1. Surprising August Job Losses Sink Stocks By Nearly 2% – Are you kidding me? Who exactly was surprised?

    2. Exporting Jobs: Fears Are Overblown – So while manufacturing used to be 47% of the economic engine, today it sits at 14%. We sell shit to one another without making anything. The manufacturing jobs are gone, the IT jobs are going, and we are to believe it’s no big deal.

    And they get $5 for this? This market is so frigging rigged!

  7. anon commented on Sep 10

    I’d add less/less expensive summer vacation travel to the list of asterisks. People will scale down the summer fun in favor of their kid’s education when times are tight.

  8. Mike Nomad commented on Sep 10


    Why would you look at volume in the first place? Volume numbers have always been a meaningless statistic. You don’t pay the “rent” with volume, you pay it with the margin.

  9. SPECTRE of Deflation commented on Sep 10

    In related market news, we have LIBOR coming down 2 ticks to 5.70% on the 3 month, but we also have a new high for our national debt. It won’t be talked about by a soul, but it will be news moving forward.

    New all-time high Thu 09/06/07

    National Debt $9,009,410,075,859.67

    Remember though that just this morning CNBS says that valuations are attractive, and by next year it could very well be all good. I want what these guys are drinking. What do they have in the Green Room, Bloodly Mary Mondays? Hair of the dog comes to mind!

  10. Brian commented on Sep 10

    It’s purely anecdotal evidence, but my wife took advantage of all the recent markdowns at retailers like Target and Walmart to finish Xmas shopping this weekend. She’s clearly insane to be worried about Christmas in September, but she spent about $200 in Aug/Sept to avoid spending $1,000 in December. Other than a new digital camera for our oldest daughter, we won’t spend another dime this holiday season.

    Some of the retailers seem to be acting like a maxed out consumer but instead of shifting debts from card to card, they are shifting sales from full value to deep discount just to keep the party going.

  11. JWC commented on Sep 10

    I shop at Kohls a lot and they are heavy into discounting. They have a senior “day” every so often with 15% discount. I’ve noticed lately that they are happening more often AND are for two days (Tuesday/Wednesday) intead of just Tuesday. I have gotten to the place that I do not go shopping at Kohls unless they are having the senior discount. And from the crouds, there are a lot of seniors who do the same thing.

  12. michael schumacher commented on Sep 10

    we will know a bit more about the health of the consumer in less than an hour when credit comes out…..not going to be pretty IMO…


  13. SPECTRE of Deflation commented on Sep 10


    “It won’t be talked about by a soul”… just as the bloody mess in Venezuela has not been seen as a discussion point from Thursdays Bloomberg article. Guess this will not have any effect on anybody.

    Posted by: Strasser | Sep 10, 2007 10:45:26 AM

    I have to laugh at the efficiant market theory with everything we are witnessing. The FED as a surrogate Bull of last resort to keep all this BS floating, and articles that read like they have been researched by school children with nary a word from anybody, save Barry and a few others that will print the truth. The really amazing part is that when the shit hits the fan, is there any doubt, people will be surprised.

    Oil, Gold and Silver down this morning. Could it be that margin calls are ringing, and those squeezed are having to sell the quality to pay for the crap?

  14. SPECTRE of Deflation commented on Sep 10

    From Charles Hugh Smith Blog. How do you put lipstick on the pig after reading these unbelievable numbers?

    And for a summary, here is scathing one from the Asia Times, 11/21/06):

    In 1999, total outstanding household debt was $6.4 trillion. As of the end of the second quarter of 2006 total outstanding household debt was $12.3 trillion.

    Household debt has increased by almost as much since 1999 as the sum total of all debt accumulated by all households across the preceding 220-year history of the US. In 1999, household mortgage debt stood at $4.4 trillion. At the close of the second quarter of 2006 it had more than doubled to $9.33trillion. In 1999, consumer credit outstanding was measured at $1.6 trillion.

    The last six years have hosted the most stupendous extraction of inflated household wealth in history. Across the 22 quarters from 2000 through the second quarter of 2006 disposable personal income increased by $2.3 trillion. However, disposable personal income as a percentage of household net worth fell. Rising house values contributed more than personal income increases largely derived from these rising house values.

  15. Pool Shark commented on Sep 10


    Your wife is not alone, my wife also likes to shop for Christmas bargains at the Labor Day sales.

    Interestingly, I had the same impression as Barry about discounting last weekend.

    We have been in the process of redecorating the last couple of months, and were shocked at the extent of the discounting last weekend. I’m used to seeing the usual 25% to 40%-off sales by retailers at their Labor Day sales, but this was amazing!

    We had been eyeing a particular leather chair for a couple of months at a long established furniture retailer that consistently has 25%-off sales, but rarely goes over 40% unless they’re discontinuing a line.
    We had been in several times to inquire about further discounts on the chair, but they wouldn’t cut more than 35% off.
    Then last weekend, the manager offered it to us at 60%-off.
    While purchasing the chair, we watched the same kind of dealing going on with other customers. It almost looked like the manager was selling his inventory in a panic.
    Across the street, another long-established retailer of leather furniture (that rarely discounts over 40%) was having a sale with many items advertised 75%-off; also felt like a panic environment.

    Speaking of Macy’s, we also picked up a new set of luggage for around 70% off; their entire luggage section was at least 50% to 60% off. It’s been a long time since I remember seeing such discounts on all the non-discontinued stock in an entire department.

    Needles to say, my wife and I came away with the distinct feeling that something more than the usual Labor Day sales frenzy was going on. It just felt like retailers were rushing to slash inventory in the fear that they may not be able to move it in the near future…

  16. SPECTRE of Deflation commented on Sep 10

    Digging into the Michigan economy on CNBS. LOL! It’s in the hole already boyz and girlz. How much more digging do we need to do to see the handwriting on the freshly dug wall? I can buy a house in Detroit cheaper than I can buy a car. Are you frigging kidding me?

    Fox may do no better, but in my mind they can do no worse than the shills who call themselves reporters on CNBS.

  17. cm commented on Sep 10

    Pool Shark: The “full prices” of the “full-price stores” are designed to have the “discounts” figured in. Good for anybody who can time their purchases to “sales” windows.

  18. Pool Shark commented on Sep 10


    I’m fully aware of the huge profit margins built into ‘regular’ retail prices, but these discounts went well beyond those.

    My wife (who loves to shop) won’t buy anything that isn’t on sale, and for which she doesn’t also have an additional dollar or percent-off coupon. So, I’m used to her getting ‘stuff’ for around 40% to 50% off (for current-season, non-discounted inventory).
    But even she was quite surprised at how deep the discounts at many retailers have been the last couple of weeks.

    I realize all this is purely anecdotal, but we both came away with a strong feeling that something more than the usual Labor Day sales was afoot.

  19. gw commented on Sep 10

    Considering the low dollar over the last year I would not be surprised if the was a foreign boost to these domestic sales. Luxury should particulary benefit from foreign buyers.

  20. donna commented on Sep 10

    Hey, we’re helping! Just bought a new set of cookware this weekend – on sale, with an additional 20% off coupon. A $500 retail set we paid about $350 for….

    Should do for us for the next 10 years or so…Of course they were Scanpans so most of that money goes to Denmark.. sorry ’bout that.

    We’re looking at getting some nice knives next – at the open stock sale, 20% off – and Wustof, so that will go to Germany…

    Hmm, anything decent made in the U.S. left to buy? We’re trying to help…

  21. techy2468 commented on Sep 10

    donna….we have some pretty slick investing packages like CDO, MBS etc….we pay quite a bit to those finance guys who cook these things….so must be pretty good.

    i am thinking on the same line, how do people make wages/profit in usa, doing what??

    if anyone knows a good source please point me to it.

    i know that we make a ton of money in software and hardware (no manufacturing though)

    we are stil doing pretty well in arms and aircrafts.

  22. Efficient Frontier commented on Sep 10

    Nice cars all around. Parking lots always full in front of malls and restaurants. More malls and restaurants being built. Huge, huge homes (i.e, starting at $750k). I hear the noise, but it ain’t matching what I see.

    Anyway, I’ve saved and now I’m waiting for a slow down so I can get a reasonable price (bubble deflated) for a new roof, furnace, etc. The last time I bought a hot water heater, the annualized price increase was over 11% over 6 years. And they say inflation is under control. Yeh, right.

    I don’t see a slowdown in one area as a problem. There is plenty we can do. Why doesn’t our leadership start an infrastructure rebuilding project. Send the developers to New Orleans and Mississippi and help them rebuild homes, schools, hospitals. Rebuild our bridges, our electrical grid. How about broadband. There is lots to do, but no real leadership. We are too busy just moving money around and doing nothing substantial with it. Ho hum.

  23. Kevin Lane commented on Sep 10

    Just got back from Staples, where we were looking to buy 5 desk chairs — worked our way from the cheapest chair up to the most expensive Leather “Lane” they had — $379 each. Then they discount them to $229 a piece, plus an extra $50 off each $500 we spend. Oh, and free next day delivery.

    Net price per chair: ~$200

  24. spencer commented on Sep 10

    I’m having problems figuring out the comments in this series.

    We have a series of people trying to show us how bad the economy is by relating examples of how they are spending so much money.

    This does not add up in my book.

  25. techy commented on Sep 10

    spencer…….we are bears we only buy stuff we need…….and keep in mind…we are not maxed out….we are rather saving for the D day……

  26. Winston Munn commented on Sep 10

    Efficient Frontier wrote: “Why doesn’t our leadership start an infrastructure rebuilding project. Send the developers to New Orleans and Mississippi and help them rebuild homes, schools, hospitals. Rebuild our bridges, our electrical grid. How about broadband. There is lots to do, but no real leadership.”

    There is a depression era aroma wafting from this works projects concept. Trouble with this is, there is no m-o-n-e-y with which to pay for all these frills (I call them frills because we have obviously ignored this repair in order to maintain our primary necessities, i.e., making war and nation building.)

  27. David commented on Sep 10


    Our back-to-school sales were the selling of junk bonds and look around the thrift shops for cool thing for the Kids. Antiques are were it at, you can make more money with antiques then you can with this Bull market.

    “Under an oak, whose antique root peeps out
    Upon the brook that brawls along this wood.”
    – William Shakespeare

  28. stormrunner commented on Sep 10

    Winston Said:

    There is a depression era aroma wafting from this works projects concept. Trouble with this is, there is no m-o-n-e-y with which to pay for all these frills


    The treasury could buy coupons and print money for this, circumventing the FED, this has been done numerous times in American history, I had a link pertaining to this, can’t find it. Posted here before though when discussing chartalism. Of course this would induce inflation, but it would not contribute to the national debt. Creating the inflation we need while reducing the debt. Seems a no brainer but the CB’s will never go for it. Most people aren’t even aware this is an option available under the current system.

  29. stormrunner commented on Sep 10

    Found it,
    I’m a chartalist which has nothing to do with charts and everything to do with the creation of money without debt. One needs to be very careful in the interpetation of Bernieboy’s helicopter drop comment. The US has used a helicopter drop about 56 to 60 times in our history as a nation. In fact this was the original currency of the colonies and many believe the real reason for the Revolutionary War. Colonial Script is a form of Helicopter drop, Lincoln’s Greenbacks are a form of a helicopter drop, Nixon’s $2 bill in 1971 is a helicopter drop. Many other instances in our nations history of money being created through the Treasury directly and not by the banks. Nixon paid the Navy with $2 Treasury Notes directly and the Navy used the $2 bill as payroll to get them into circulation. Kennedy ordered the Treasury to issue Treasury Notes backed by silver, this was a helicopter drop as well. All money created without debt. Our nations coins are Treasury issued, ever wonder why a nation that can send a man to the moon can’t stamp a coin and not leave off the words In God We Trust? Helicopter drops, Treasury Notes and coins are competition with the Federal Reserve. A one d0llar coin could be serious competition to the Federal Reserve.

    And here,

    Keynes argued that interest rewards no genuine sacrifice, and compounding ensures that the distribution will go to the rentier. He linked unemployment to the desire for liquidity; only monetary economies have unemployment. By definition, whatever is technically feasible in a nonmonetary economy can get done. If the
    pharaoh observes there are some idle men about, he puts them to work to build a pyramid. Financing can never get in the way of pyramid-building, although insufficient quantities of real resources or lack of technical know-how can act as real barriers. It is only the modern economy that appears to be financially unable to do
    what is technically possible. The US and Japan and Germany are supposed to have to suffer unemployment because they all are too poor to put the unemployed to work because their governments are “broke”–they
    simply do not have the money to employ those without jobs.

  30. touche commented on Sep 10

    The distress sales are accomplishing what the taunts from the bulls could not do – bring the bears out of hibernation. Looks like a gluttonous feast ahead.

  31. Winston Munn commented on Sep 10

    Stormrunner wrote: “The treasury could buy coupons and print money for this, circumventing the FED, this has been done numerous times in American history, Of course this would induce inflation, but it would not contribute to the national debt.”

    To create the amount of money needed to rebuild infrastructure, schools, hospitals, elictrical grids, etc., would lead to near Weimer Republic inflation. This inflation would further erode wealth.

    The enemy is inflation – producing more of it solves no longterm problems.

  32. cm commented on Sep 11

    stormrunner: Yeah, but I’d rather not work on the Pharaoh’s pyramid.

  33. ashley commented on Sep 11

    Hi Barry,

    Nice to see your BTS comments, they are helpful. It’ll be interesting to see how the September comps roll out given the shifts in BTS starts and tax-free holidays. ICSC reported better than expected traffic for last week this morning…

  34. stormrunner commented on Sep 11

    I wasn,t suggesting creating any more money additionally than what would already be scheduled to be borrowed from the CB’s in the first place. Just to HAVE THE TREASURY ISSUE IT DIRECTLY, rather than adding to the national debt. Surely everyone here realizes that every single red cent of every tax dollar collected goes to service the debt the remaining capital needed to run the government is borrowed and added to the debt how could this make more sense than what I am suggesting. And as you can see this has been done before it is in no way precendent setting.

  35. stormrunner commented on Sep 11

    Furthermore how could borrowing money to be spent into the economy be any less inflationary than the treasury just issueing, I understand that by borrowing the government is required to pay back with interest, which should remove excess liquidity from the market place. The government however as I’ve already suggested does not pay back principle just interest while it continuiously borrows more, using tax receipts to service previous debt increasing monetary aggregates while assuming unnecessary financing debt,

    This is what appears ludicrous to me.

    Winston, please clear this up for me
    I not suggesting a complete revamp of the monetary system yet, just some case by case parallel issuances necessary to fund Government operation without further lining the pockets of the cartel, why is this summarily dismissed even though its been accomplished here and in Canada not all that long ago.

    With regards to not wanting to wok for Pharaoh, this example just illustrates the insanity of underemployment in a society that accepts a medium of exchange that is backed by nothing but acceptance, how could there possably not be enough of something which is manufactured from thin air in the first place.

    I contend that the problem is the USURY every bit as much as the INFLATION, and this USURY is paid largely to private hands.

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