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VOL. 36 | NO. 44 | Friday, November 2, 2012

Retailers' gains in October could hurt holidays

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NEW YORK (AP) — Americans spent briskly in October before Superstorm Sandy hit the Northeast on the tail-end of the month. But the question is whether they're still willing to buy an iPhone for Christmas if they plunked down hundreds on a generator for Sandy?

Twenty-one retailers from club operator Costco to department store Macy's reported that sales in October through last Saturday were up 5 percent compared with the year-ago period, according to the International Council of Shopping Centers. That beat the trade group's estimated growth of 3.5 percent to 4.5 percent. Results were not hurt by the storm because it hit the East Coast on Monday, two days after the period for which retailers were reporting sales ended.

But analysts worry that the strong sales in October could spell trouble for the upcoming holiday shopping season in November and December, a time when many retailers make up to 40 percent of their annual revenue. They fear that many Americans in some of the nation's biggest cities who bought generators, bottled water and other emergency and cleanup supplies before and after the storm will be less inclined to spend over the holidays.

For example, Kathleen Nicholson, a Yardley, Pa. resident, said Thursday that because of Sandy, she's likely to spend a little less than the $900 she dished out for holiday gifts last year for her children who are ages 12, 13 and 17. The reason? She and her husband have to foot a $1,500 bill for removing two large pine trees that fell in her backyard because of the storm.

"We didn't plan for it," said Nicholson, a college journalism instructor whose husband is a consultant. "I think we're going to have to have a pretty frugal Christmas."

At a time when Americans already are dealing with a slow economic recovery and uncertainties related to the presidential election on Tuesday, Sandy just gives some of them another reason to cut their spending. Few retailers offered details Thursday on how their sales were affected by Sandy. But the storm, which for days disrupted business activity from North Carolina to Maine and caused stores to close due to power outages, flooding and other issues, is expected to cost retailers billions in lost sales.

October's sales reports don't offer a complete picture of the storm's impact. Not only does it exclude sales for the period after Sandy hit the East Coast. It also only includes a handful of retailers representing about 13 percent of the $2.4 trillion U.S. retail industry report monthly results, which are based on revenue at stores opened at least a year. Home improvement chains like Home Depot, the world's biggest retailer Wal-Mart Stores Inc. and other stores that might have been impacted by the storm didn't report sales.

But so far, the effects of Sandy mostly are expected to be a wash. Home improvement chains and food stores are expected to benefit, while sales at department stores, clothing retailers and others that sell discretionary items likely will suffer. But with many closed stores just starting to reopen, analysts said that the full effects of the storm could spill over into November.

Burt Flickinger III of retail consultancy Strategic Resource Group, estimates that retailers, excluding restaurants, could lose at least $25 billion in sales during the week of the storm. He also downgraded his projection for holiday sales because of the storm, forecasting that they will rise 2.1 percent over last year instead of the 3.2 percent that he had originally predicted.

"People are going to be focused on getting their life back in order —and the holidays could be secondary," said Laura Gurski, a partner and global head of A.T. Kearney's retail practice.

Wal-Mart, based in Bentonville, Ark., declined to discuss monthly sales, but the retailer said it's been rushing deliveries of emergency supplies like generators and nonperishable foods that don't need to be refrigerated to its stores. Currently, 12 of its namesake stores, distribution centers, Sam's Clubs and other facilities remain closed. That's down from a peak of 300 that were closed on Monday.

"We have teams in place dedicated to making sure our stores and clubs are ready and able to meet our customers' needs both during the recovery and for the holidays," said Dianna Gee, a Wal-Mart spokeswoman.

Home Depot, based in Atlanta, also declined to give figures, but said its stores have been busy, as one would expect. About 44 of Home Depot's 2,200 stores were closed on Monday when the storm approached, but by Thursday, only two locations in New York City remained closed.

"From a few days before the storm until now we're moving in trucks all the time with products to make sure that stores stay replenished," said spokeswoman Paula Drake.

Officials at Macy's, the Cincinnati, Ohio-based department store chain that generates 8 percent of its annual revenue from its New York City stores, said Thursday that they're hopeful that the retailer will recoup some or most of its lost sales from the storm during the remainder of the quarter. More than 200 Macy's and Bloomingdale's stores were closed for some period of time up to multiple days as a result of the storm.

Macy's said sales increased 4.1 percent in October, up from the 2.9 percent increase Wall Street had expected. And Macy's raised its guidance for revenue at stores opened at least a year for the second half to 4 percent, up from its original estimate of 3.7 percent.

"Business was strong in October," said Terry J. Lundgren, chairman, president and chief executive officer of Macy's in a statement. "We are feeling confident about our prospects for the upcoming holiday season ... despite the interruption caused by Hurricane Sandy in the first few days of the fourth quarter."

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