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Retailers rely on deep discounts to win back-to-school shoppers

Thursday, 5 Sep 2013 | 10:20 AM ET
David Paul Morris | Bloomberg | Getty Images

Many U.S. retailers reported stronger-than-expected August sales on Thursday, but they had to use steep discounts to woo back-to-school shoppers.

The unusually high level of discounting raised concerns about margins for this quarter. It also showed that apparel chains might have to keep offering bigger incentives at a time when consumers are spending more on their homes, cars and other durable items.

The level of discounting "was certainly higher than last year," said Ken Perkins, president of consulting firm Retail Metrics. "They seem to be above the norm. That was emblematic of just the lack of demand for back-to-school."

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The back-to-school season is the second-biggest selling period of the year for U.S. retailers, behind the winter holidays.

What are teenagers buying?
At the end of the day, it all comes down to brands, reports CNBC's Courtney Reagan. A walk around a mall with a few teens to see just what they're buying in retail.

Analysts were estimating a 3.1 percent rise in August sales at stores open at least a year at the retailers tracked by Thomson Reuters I/B/E/S. Most, including Costco Wholesale and Buckle, beat expectations for the month on Thursday, while Victoria's Secret parent L Brands Inc missed estimates.

The Standard & Poor's Retail Index was up 0.6 percent on Thursday morning, outpacing a 0.3 percent gain for the broad S&P 500.

Same-store sales are an important measure of a retailer's performance because they strip out the effects of store openings and closings.

Fewer than a dozen U.S. retailers report monthly sales, down from a peak of 68 in 2006. In the years since, big names such as Macy's, Wal-Mart Stores, and Best Buy have dropped out of the same-store sales index.

(Read more: Dumped! Stewart designs shelved by JCP)

Mall-based apparel chain Cato Corp.'s same-store sales fell 2 percent, while analysts expected a 3 percent drop.

"We remain cautious in regard to the remainder of the year," Chief Executive Officer John Cato said in a statement.

Buckle, which caters to teenagers, reported a 1 percent rise, beating estimates of a 0.4 percent increase.

Costco's same-store sales, including those of gasoline, rose 4 percent, just beating analysts' expectations of a 3.8 percent gain. Demand was strong for health and beauty aids and food, but weak for electronics, the largest U.S. warehouse club chain said.

Stein Mart also topped same-store sales forecasts for the month, reporting a 3.8 percent rise on strong demand for everything from linens to women's dresses.

Walgreen, the largest U.S. drugstore operator, reported a 4.8 percent increase, while analysts had expected only a 2.8 percent rise.

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