Retail giants spark fears of US Christmas slowdown

A slew of disappointing sales figures from US retailers has sparked fears of a sharp pre-Christmas slowdown in consumer spending in the world's largest economy.

The country's biggest retailer Wal-Mart predicted that its sales would be flat this month - its worst result in more than a decade - while other big names, including the Gap clothing store chain and Target, also failed to match Wall Street's expectations.

A sell-off in retail shares contributed to a slide in the Dow Jones Industrial Average yesterday.

Wal-Mart, the discount giant which is seen as a barometer of the consumer economy, said sales growth in October was a meagre 0.5 per cent and that sales in the first four weeks of November "are estimated to be approximately flat".

The company's sales have lagged Wall Street forecasts repeatedly this year. Earlier excuses that customers have been put off spending because of high petrol prices were not repeated by the company yesterday. The cost of filling up has fallen in line with oil prices since the summer.

Tom Schoewe, Wal-Mart's finance director, blamed tough comparisons with last autumn, when customers in the south were restocking their homes after the hurricanes. He said the company was also suffering disruption from a store makeover that Wal-Mart hopes will allow it to attract more affluent customers.

"Our remodeling efforts wrap up during the next two weeks to ensure there is no disruption for our customers during the holiday shopping period," Mr Schoewe said. "Remodeling activities will begin again in late January and will continue into the next fiscal year."

Investors have debated whether Wal-Mart's woes may be specific to the company, which may have outgrown its core market of cost-conscious Americans without finding a way to appeal to more wealthy consumers.

But there were disappointing figures even from Target, which has been winning market share from Wal-Mart. Both are expected to step up a pre-Christmas price war that analysts fear will hit profits across the sector.

According to Thomson First Call, the financial data provider, 57 per cent of the retail sector has posted disappointing figures in third quarter. Only the department stores have outperformed expectations.

Shares in Gap were down more than 6 per cent at one point after it said same-store sales fell 7 per cent in November, worse than analysts' forecast for a 2.5 per cent drop. All its main chains - Gap, Old Navy and Banana Republic - fell short of estimates, and worse-than-expected customer numbers at Old Navy forced the unit to slash prices. Gap's same-store sales have declined in 26 of the past 29 months.

Overall, US chain store sales increased by just 3 per cent in October, according to an industry report, and no improvement is expected in November. Sales had been growing at 4 per cent in September, the International Council of Shopping Centres said.

"Surprisingly the industry segments that were most sensitive to gasoline prices did not get the kind of lift that might be implied by the recent price declines," the ICSC report said. "Over the next few months, we will be watching to see if this trend continues."