Bad sign: Shoppers use gift cards for groceries

Shoppers appear to be looking at gift cards not as "free money" but rather as their "own personal cash," said C. Britt Beemer, chairman of America's Research Group, citing his recent surveys with consumers.

They're also holding on to the gift cards longer this year than last year, he said — 15 percent of the 1,000 consumers his group interviewed said they redeemed their gift cards in December, compared with 33 percent who did so last year.

The retail sales results extended a streak of news that showed more signs of consumer strain. Consumer spending accounts for two-thirds of the nation's economic activity, and it appears to have stalled from an already slowing pace seen over the past year.

Shoppers have had to contend with rising gas and food prices and a slumping housing market, and there are signs that the job market is becoming a concern as well.

The Labor Department reported Friday that U.S. employers sliced payrolls by 17,000 in January, the first decline in more than four years. The department said Thursday that jobless claims fell last week by 22,000, but that was a decline was smaller than expected.

And if the job market continues to deteriorate, "all bets are off," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampsott, Mass.

While investors are hoping the Federal Reserve can avert a recession with a series of rate cuts, some economists say the moves may be too little, too late.

Analysts also say that while the government's proposed economic stimulus package, which would send rebate checks to more than 100 million Americans, could help re-ignite spending, the lift would be only temporary.

Nonetheless, shares of several retailers rose Thursday as many either confirmed their earnings forecasts or raised them, signaling they were able to control their inventories.

Hot Topic Inc. and Wal-Mart stuck with their outlooks, while Pacific Sunwear, Wet Seal and Gap Inc. raised their profit guidance despite lower sales.

Retailers are expected to offer a better picture of the impact of slower sales and may shed light on gift card redemptions when they report fourth-quarter earnings over the next few weeks.

Department stores and mall-based apparel retailers posted some of the steepest sales declines Thursday. J.C. Penney Co. saw same-store sales at its department stores drop 1.9 percent, though that was better than the 6.3 percent decline expected by analysts polled by Thomson Financial.

Upscale department store Nordstrom suffered a 6.6 percent decline in same-store sales, much worse than the 0.7 percent decrease expected.

Macy's Inc. had already reported a 7.1 percent decrease in same-store sales on Wednesday, worse than expected. Spokesman Jim Sluzewski acknowledged that gift card sales and redemptions were weaker than last year, reflecting the overall slower sales trend. He noted that Macy's doesn't track how shoppers use their gift cards.

Saks Inc. fared better, saying same-store sales rose 4.1 percent, better than the 2.2 percent estimate. But the luxury retailer said shoppers are still shifting more of their spending to sale merchandise.

Discount retailers have held up better as higher-income shoppers shift their spending to less expensive stores. But their traditional customers are cutting back as well. Target Corp. reported a 1.1 percent decline in same-store sales in January, worse than the 0.6 percent decline analysts expected.

Wal-Mart reported a 0.5 percent gain in same-store sales, far below the 2.0 percent increase expected. The company said it continues to do well with basics like groceries but home furnishings remain weak.

At a Wal-Mart in Cheektowaga, N.Y., near Buffalo, shopper LaShari Jackson, 37, said she was "just getting the basics, household stuff." She said she had no plans to look at electronics, CDs or other splurges: "Can't afford it."

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