Hurricanes lift US discount shops

US consumers are saving money buying cheap necessities

Cut-price retailers have been the surprise beneficiaries of the current US economic and hurricane woes.

Experts said consumers had flocked to low cost names to pick up low price essential goods - ditching more expensive names in America's malls.

Like-for-like sales at retail giant Wal-Mart surged 3.8% during September while rival Target posted a 5.6% jump.

Meanwhile, warehouse-style CostCo said sales had risen 11% as it posted a 20% surge in third quarter profits.

US consumers have been feeling the pinch as they face rising gasoline - or petrol - prices and the Federal Reserve's decision to raise interest rates for an 11th consecutive month.

US rates now stand at 3.75% after hitting historic lows of 1% in June 2003.

Hurricane effect

Meanwhile, Hurricanes Katrina and Rita have ravaged the US oil producing region in the Gulf of Mexico sparking a surge in crude oil prices to record highs of $70.85 (£39.82).

Consumers were spending on essential items in September and forgoing non-essential purchases Kevin Perkins, RetailMetrics

That rise has now filtered through to home heating prices and petrol pumps - where prices recently hit records above $3 - leaving consumers counting their cents and heading to the cheapest fuel sellers as a result.

"Higher gasoline prices put pressure on people's spending and makes them seek out discounts and makes them go to Wal-Mart or CostCo, who are price leaders," Ed Weller, analyst at ThinkEquity said.

But spiralling fuel prices are not the only fallout.

Consumer confidence has slumped and unemployment has risen - latest figures from the Labor Department show the number of Katrina and Rita job losses had risen to 363,000 last week .

As a result "consumers were spending on essential items in September and forgoing non-essential purchases," Kevin Perkins, president of RetailMetrics research firm, said.

Store fallout

Wal-Mart said September's business was lifted by increased demand for staple goods such as bottled water, cleaning goods and food in the wake of the hurricanes.

Meanwhile, CostCo thanked cash conscious customers lured in by cheaper fuel prices for its 11% September sales rise - excluding gasoline sales that number would have been just 8%.

However, the move has meant department stores have suffered.

Sales at Federated stores rose a more subdued 1.3% during September - however, experts did point out that the figure did include sales at Macy's stores which the firm only took over in May.

Fellow department store JC Penney just missed forecasts of a 1.5% like-for-like sales increase, posting a rise of 1.4%.

Clothing stores were hardest hit - Gap saw sales drop 6%, while womenswear retailer AnnTaylor said same store sales fell 2.7% as unseasonably warm weather hurt sales of cold weather clothing.