Retail Sales Moving Away From Discretionary Items

New York, NY, Aug. 7, 2008--Retailers reported that July sales showed an increasing shift toward buying necessities like food and household supplies at discounters and away from discretionary splurges.

With the benefits of the government stimulus checks fading, the big worry is how much shoppers will retrench in the critical months ahead.

As the nation's retailers reported monthly sales, Wal-Mart Stores Inc. and Costco Wholesale Corp. posted solid gains.

But July results for Wal-Mart fell slightly short of Wall Street forecasts. The company noted that shoppers are increasingly running out of money and projected that sales would slow in August as the benefits from the stimulus checks dry up. Many mall-based apparel stores including Limited Brands Inc., Abercrombie & Fitch Co. and Gap Inc. remained in a malaise.

Consumers are finding that their paychecks are not keeping up with rising food and gas prices. They're also dealing with tighter credit, a housing slump that doesn't look like it will be ending anytime soon and a weaker job market. Such fears have dragged down consumers' outlook for the economy to the lowest level in decades, according to the Conference Board.

Facing these increasing financial worries, Americans have been shopping at lower-price alternatives -- which has helped stores like Wal-Mart and Costco. But Thursday's sales reports show that even discounters, which had been the biggest beneficiaries of the stimulus checks in recent months, are facing tougher times.

Wal-Mart reported a 3 percent gain in same-store sales for July, missing the 3.4 percent gain expected by analysts.

The discounter said that same-store sales increased in grocery, entertainment, and health and wellness, but that its home and apparel business posted small declines.

Target Corp.said that same-store sales slipped 1.2 percent, worse than the 0.3 percent decline that Wall Street expected. The discounter has a higher percentage of nonessentials like clothing and home furnishings compared to Wal-Mart.