Retailers Slash Prices in Hopes of a Better '95

UNITED States retailers - stunned by a sales decline in December - are scrambling to lure back customers during early 1995.

National chains such as Sears, Roebuck & Co., J.C. Penney Company, and K mart Corporation are holding special clearance sales, slashing prices on selected goods, such as apparel.

Specialty stores and upscale retailers also are discounting some of their more expensive items. National retailer Lord & Taylor, for example, is advertising discount ``coupons'' on certain items.

``There's a promotional climate out there in general now,'' says Duncan Muir, a spokesman for J.C. Penney in Plano, Texas. Recently, for example, J.C. Penney stores slashed prices up to 40 percent to 50 percent on some clothing items. The result: Customers are flocking back into stores, Mr. Muir says, with a number of Penney's locations posting ``very strong'' sales.

But, with the threat of higher interest rates and consumers carrying more debt, retailers and analysts wonder if big discounts and flashy promotions will keep shoppers coming back.

``The great challenge for retailers is not just devising corporate strategies and cutting costs, but attempting to attract consumers who are `spent up' and borrowed to the hilt,'' says Janet Mangano, retail strategist with investment house Burnham Securities Inc. in New York.

Consumers are already strapped by ``high debt levels and slow gains in personal income,'' Ms. Mangano says. If the Federal Reserve boosts interest rates again next week, that will further curb consumer spending, she says. ``That would not be happy news for retailers.''

December retail sales slid 0.1 percent, according to the US Commerce Department. And it revised November figures downward, from a gain of 1.2 percent to an increase of only 0.2 percent.

Many retailers blame the clothing-sales slump on the warm weather on the East Coast. It worked against sales of coats and sweaters, says Coleman Nee, a spokesman for Bradlees in Braintree, Mass. But ``we're now seeing some traffic for those goods.''

For 1994, the retail industry posted a gain of about 2 percent in real sales growth, excluding inflation, says Kurt Barnard, president of ``Kurt Barnard's Retail Marketing Report,'' a forecasting publication in Scotch Plains, N.J. That is about half the real gain (4 percent) in 1993.

``Retail sales are down not just because of less disposable income, but because there has been a major shift in consumer spending towards more practical and less expensive products,'' especially with clothing, Mr. Barnard says. ``There's been a sharp relaxation of the dress code at the workplace, which means that people don't have to have designer clothes; and ... more people are working at home, thanks to the computer revolution.''

As a result, he says, ``sellers of designer clothes and expensive apparel items have fallen on very hard times.'' He predicts that retailers will post real-sales gains of about 2 percent in 1995.

``Department stores must adjust to the new realities'' of the marketplace if they are going to be competitive, Barnard says.

Still, Wayne Hood and Amy Ryan, retail analysts for investment house Prudential Securities Inc. in New York, forecast that sales growth will jump about 6 percent this year (unadjusted for inflation, 2.9 percent after inflation), up from 5 percent in '94. Durable-goods stores, discounters, general merchandisers, and department stores will post the best gains.