US shoppers go bargain hunting

Shoppers seek discounts as recession fears hit home

Discount stores are reaping the benefits of an economic downturn in the United States.

July sales

Gap - down 12%

Saks - down 4.8%

AnnTaylor Stores - down 17.4%

Sears, Roebuck - down 2.5%

Abercrombie and Fitch - down 14%

Wal-Mart - up 6%

Kmart - up 2%

JC Penney - up 2.2%

Costco - up 4%

Mass lay-offs and recession fears have taken their toll on consumer confidence as shoppers swap upscale, branded outlets such as Gap for price-cutters such as Wal-Mart.

Wal-Mart said like-for-like sales, excluding income from new stores, were up 6% in July.

Kmart - the second biggest discount chain in the US - reported a 3.4% increase in like-for-like sales.

Tax cut windfall

Gap, by contrast reported a 12% sales slump, compared to the same period last year.

Consumers kept their hands in their pockets, and as a result, stores were empty

Kurt Barnard, retail analyst

It was similar story at Saks, which operates prestigious outlets such as Saks Fifth Avenue, in New York.

The group said it expects second quarter losses to be at least double Wall Street expectations.

Many shoppers' wallets are bulging with the first fruits of the $38bn tax cut package introduced by President George W Bush

But it is the discount stores that have largely benefited from the windfall.

Wal-Mart said shoppers who cashed their rebate cheques instore, spent 25% of the cash before leaving.

They were mostly spending the cash on big-ticket items such as televisions, DVD players, cameras and computers, the supermarket giant claimed.

The company said customers at its Sam's Club warehouses were spending 80% of their tax cut money.

Back-to-school

Youth-orientated retailers such as Gap and Abercrombie and Fitch - which reported a 14% slump in sales - have been hit particularly hard.

Kurt Barnard, president of the Barnard Retail Trend Report, said: "Discounters and low-priced stores were again the only winners.

"Consumers kept their hands in their pockets, and as a result, stores were empty."

July, with its big clearance sales, is one of the least important months in the retail calendar.

August's performance is a better measure of the back-to-school season.

But July offers a glimpse of where the business is heading - and weakness in the economy is complicating the situation.

Michael Niemira, vice-president of the Bank of Tokyo-Mitsubishi, said: "Right now, there is a lot of confusion about when all of this will end."