Back-to-School Blues

Just a couple of weeks or so until the kids return to school. Gas prices are high, consumer confidence low--an ugly picture for retailers trying to lure shoppers through the door at a critical time of year.

Even the most optimistic forecasts say 2008 will show the lowest seasonal sales growth in six years. The likely winners? Those offering cut-rate prices or spending heavily on promotions.

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Wednesday the government reported July retail sales were the weakest in five months, with sales at department stores and general merchandise stores up just 0.3% from the prior year. The same day, department-store barometer Macy's issued a lackluster earnings report, announcing it made 17 cents a share for the second quarter, two cents below Wall Street estimates. Same-store sales dropped 2.1% from last year's quarter.

The downbeat news had shares of retail stores dropping across the board. Many retail Web sites are touting free shipping as a counterbalance to high gas prices; electronics chains Best Buy and Circuit City are directing shoppers to their low-cost outlet centers.

"Coming off the July numbers, along with conversations I've had with many retailers, I don't think it will be an exciting back-to-school season," says Bob Carbonell, chief credit officer at Bernard Sands, an industry adviser. Keeping the pressure on many retailers, he believes, is the continued subprime crisis in states like California and Florida, two key sales areas for national chains.