Retailers Respond to Slow Sales

Consumers' weak holiday spending patterns appear to be continuing into the new year, raising concerns about the impact of prolonged belt-tightening on the economy.

Wal-Mart, Target, and Macy's were among the retailers reporting slow January sales. Wal-Mart reported disappointing U.S. same-store sales growth of 0.5 percent compared with January 2007, which the company partially blamed on bad weather in the Midwest and the fact that many consumers had not yet spent their gift cards from the holidays. Meanwhile, Macy's and Target reported January same-store sales down 7.1 percent and 1.1 percent, respectively.

Many in the retail industry took the news as an incentive for quick action. "Clearly, consumers are hibernating after spending over the holiday season. Although we're concerned with the level of weakness we're seeing in [same-store sales growth], this clearly underscores the need for an economic stimulus package," says Scott Krugman, spokesman for the National Retail Federation, referring to the proposals being considered by Congress. "We're hopeful that this passes sooner rather than later to get those checks into the hands of people who need them the most—and that's the consumer."

Macy's announced its own plans to boost sales through improved customer service and local sales initiatives. "Improving sales...requires innovation in engaging our customer more effectively," said Terry Lundgren, chief executive of Macy's, in a statement.

While Congress appears poised to approve a stimulus package, surveys suggest retailers would not be on the receiving end of the cash once it gets into the hands of consumers. According to a survey by the International Council of Shopping Centers and UBS Securities, 43 percent of participants said they would use their rebate checks to pay off debt, 26 percent said they would save the money, and only 24 percent said they would spend it.

But the council acknowledged that even with that low spending rate, the rebate checks would translate into about $25 billion of spending, which the council's chief economist, Michael Niemira, described as positive for the economy.

Krugman says that even if consumers don't spend the money right away, it will strengthen their overall spending power. "Whether they paid down debt or put it into savings, it's improving the consumer outlook and spending power either in the short or long term," he says.