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Retailers brace for '02 home stretch

It's nearly Christmas season. So where are retail sales? A month before Thanksgiving, the outlook is grim. After bolstering the economy all year, consumers are pulling back. September and October same-store sales have been flat or down across the industry.

As third-quarter sales indicate, the news is positively bleak for full-line retailers, and no longer stellar for discounters. While the poor showing was set in the context of a bearish stock market, comp-sales comparisons should have been at least marginally stronger since they're compared to the weaker post-Sept. 11 period of 2001. They weren't.

“The retail headwinds are fast approaching in the form of tough compares in the top line,” says Emme Kozloff with Bernstein International in New York. “At the same time, the West Coast docks slowdown and the weaker sales seen among retailers in the ‘easy compare’ period of September portend significant challenges and the potential for downward earnings revisions for the sector.”

Overall, the results are painting a much clearer picture of holiday sales — stronger stores are finding rough sailing and weaker department stores are (still) struggling.

While some deep discounters like Big Lots are reporting strong earnings, darling discount machines Wal-Mart and Target are finally feeling the effects of a slower economy and increased competition with one another.

Stock analysts are even questioning Target's long-term strength. With Kmart out of the equation as a strong discount player, the battleground between Target and world-No.-1 retailer Wal-Mart has gotten bloodier as the two increasingly go head-to-head in product categories like children's clothing.

“Target's ‘trend’ merchandise is being challenged,” says Michael Exstein, a retail analyst with CS First Boston in New York. “This has been the cornerstone of its differentiation strategy and its ability to generate higher gross margins versus Wal-Mart. It now appears Wal-Mart's second growth vehicle behind food is not just apparel, but more ‘trend-forward’ merchandise.”

Also speaking of Target, “I'm not sure how much longer they are going to remain a darling of the industry,” says Ladenburg, Thalmann & Co. analyst Eric Beder.

Both retailers will be slugging it out in a challenging holiday shopping season. “There's a lot of indicators that this isn't going to be a great holiday season,” says Michael Baker, head of research at the ICSC. “We were saying the same thing last year, and actually the situation I would suggest is quite a bit worse this year.”

TAGS: Retail
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