Retail shares drop sharply as market woes linger

NEW YORK -- With Black Friday just around the corner, two new forecasts Wednesday pointed toward a tough holiday season for retailers and offered evidence that consumers simply may not be in a spending mood.

Shares of several retailers dropped sharply, as investors were already nervous about grim economic data and whether the Detroit Three automakers -- General Motors Corp., Ford Motor Co. and Chrysler LLC -- would get a bailout.

Minutes from the Federal Reserve's last rate-setting meeting in October also suggested that more interest rate cuts may be needed to help ease the financial crisis that has pummeled many companies, including retailers.

Traffic at retailers is expected to decline 9.9 percent during the holiday season this year as consumers limit spending, according to a report from research firm ShopperTrak RCT Corp. The company tracks sales and traffic, or consumers' visits to stores, at more than 50,000 places in the U.S.

Retailers will be "scrambling" to entice consumers in their stores, said Bill Martin, cofounder of ShopperTrak RCT. He said the company is anticipating the lowest U.S. traffic figures since the survey began in 2001.

"Consumers are going to be quite deliberate with their spending," Martin said. "They are not going to let Christmas pass, but they are going to want to get as much value as they can for their money."

Meanwhile, national retail sales, or sales at stores open at least one year, are expected to rise 0.1 percent, compared with a 2.5 percent increase during the 2007 holiday shopping season, according to ShopperTrak.

Fitch Ratings also offered its own bleak outlook, saying the 2008 holiday season may be the weakest for retailers during the past two decades. Promotions will be "substantial" and broad-based to boost traffic and clear out inventory, Fitch said.

Looking ahead to 2009, Fitch expects these trends to continue, with overall weakness in retail sales. Fitch also expects consumer spending to decline further in the fourth quarter and in 2009.

Rising unemployment, tighter credit and weakness in the labor market will offset any gains from lower energy and commodity prices, Fitch said.

Shares of many retailers tumbled yesterday. Women's apparel retailer Liz Claiborne Inc.'s stock sank $1, or 32 percent, to $2.13, after hitting $2.07 earlier in the session -- a level not seen since 1984. Last week, Liz Claiborne narrowed its full-year profit outlook because of "significant declines in consumer confidence and discretionary spending."

Shares of Jones Apparel Group Inc. slid $1.29, or 21 percent, to $4.83, after hitting $4.80 -- a level not seen since 1991.

Elsewhere in the retail sector, shares of department store operator Nordstrom Inc. set a new six-year low of $8.69. The stock declined $1.40, or 13.5 percent, to finish at $8.98. Department store operators have been hit hard as many Americans trade down to cheaper items.

In the discretionary sector, shares of cosmetics company Revlon Inc. gave up 93 cents, or 10 percent, to $8.14, while shares of jeweler Zale Corp. lost $1.72, or 17 percent, to $8.48, and set a nine-year low of $8.42.