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I am not very optimistic about the retailers over the next year.  October was horrible.  The holiday season will be worse.  My in store checks are already turning up significant discounts as retailers try to sell holiday merchandise.  Saks already has Christmas candy on sale for 40% off.  This will be the first ever decline in christmas sales.  I don't look for the retail sector to improve for at least a year. If then.  Consider the article below.

 

NEW YORK (CNNMoney.com) -- The nation's retailers had a terrible October - with the exception of discounter Wal-Mart - as more Americans cut their shopping budgets in an economic downturn.

The sales may be the worst in at least eight years since Thomson Reuters - which tracks monthly sales for 34 of the nation's largest retailers including Wal-Mart (WMT, Fortune 500), Gap (GPS, Fortune 500), Sears (SHLD, Fortune 500) and J.C. Penney - began tracking the results in 2000.

And October won't even mark the bottom of a year-long slump in retail sales, according to Stephen Hoch, director of Wharton Business School's Jay H. Baker division of retailing.

That's a big problem for an economy that's already in distress since consumer spending also fuels two-thirds of economic activity.

"It will get more brutal," Hoch said. "The further you move away from non-discretionary issues the worse it's going to get."

In past economic downturns, Hoch said consumers have continued to spend. Not this time.

"Even if they want to shop they just don't have the same access to money through credit that they've had in the past," Hoch said. "The consumer is in a dangerous state of malaise."

A disastrous October also elevates concerns about the November-December holiday gift-buying period which can account for as much as 50% of merchants annual profits and sales.

"It looks pretty bleak except for Wal-Mart," said Ken Perkins, president of sales tracker Retail Metrics. "Wal-Mart is definitely gaining market share at the expense of other merchants."

Analysts expect October same-store sales, or sales at stores open at least a year, to show a much worse 0.8% decline from an intial forecast of a 0.3% drop. Final figures were expected to be available later in the day.

Some retail analysts are predicting a first-ever decline in holiday sales.

According to Thomson Reuters, 24 of the 34 retailers they track sales have already reported. Of them, 57% missed analysts' estimates, 39% beat and 4% met forecasts.

Specialty sellers were especially hit hard last month, including clothing seller Gap Inc. (GPS, Fortune 500) which reported a 16% drop in same-store sales and sales at Pacific Sunwear tumbled 11.1%. Limited Brands, owner of Victoria's Secret and Bath & Body Works, said sales declined nine percent.

Sales at Wal-Mart's rival Target fell 4.8%

Among department store chains, sales at Macy's (M, Fortune 500) fell 6.3% and the retailer said its expects November same-store sales to "decrease in the low double digits."

Wal-Mart, however, which typically doesn't consider itself to be a gift-buying destination, could emerge in surprisingly good shape after the holiday season.

In October, the world's largest retailer actually reported reported better-than-expected monthly sales as more cash-strapped consumers flocked to its discount stores for bargains on groceries and household goods.

Wal-Mart said its same-store sales rose 2.4%, beating its own forecast for a 1% to 2% increase in the measure for the month.

The company said store traffic was driven in part by demand for Halloween-related merchandise. Also, the retailer said its aggressive marketing campaign highlighting price-savings for consumers in a tough economy appeared to be resonating well with its customers.

Unlike most of its retail rivals, the discounter's low-price model now has new-found appeal not just with low to middle-income households but also with higher-income shoppers who are trading down on discretionary goods.

"We see more customers shopping more often at Wal-Mart," Wal-Mart U.S.A CEO Eduardo Castro-Wright said in a statement. "Customers see that we are broadening the price gap against our competitors. They saw it during the Halloween season and they will continue to see it during the Christmas shopping season."

And for the first time, Wal-Mart will introduce a holiday gifts section in its stores, executives revealed last month.

For November, Wal-Mart expects same-store sales to rise between 1 to 3%.

But most other merchants had a disappointing month.

Perkins said he's not that surprised by the sales weakness in October.

"This was in the works," he said. "Retail sales are closely linked with the job market. Continuing job losses will keep hurting retail sales."

Perkins expects retail sales to be soft well into 2009 but there could be one silver lining for merchants.

"Comparisons do get easier in 2009 so that could help merchants a bit," he said.
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There is a shift ongoing in consumer demand.  There are too many retailers and the weaker ones will die.   The market has already run them down pretty well though.   One area that would appear to be overpriced is the REIT retail sector.   They have not been punished enough.  Vacancies should pressure rents, and we could see a few go under.  

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Agreed, it's going to be a really rough Christmas. I wrote about the major ugly headwinds yesterday for Fool.com as well (and also mentioned the Grinch!). No reason to sugarcoat or hope it will be better... it will be ugly. Although I still think for those with very long time horizons (and very picky about what stocks they buy) it will yield good opportunities.

More in my commentary, if you're interested, if not then cheers, haha: http://www.fool.com/investing/general/2008/11/05/credit-coal-in-christmas-stockings.aspx?source=ihprlklca0000002

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