National

Retailers Worry Over Depressed Wages, Job Losses

By Marilyn Geewax

Published August 7, 2010 at 9:05 PM PDT

This story was published more than 14 years ago.

A shopper browses clothing at an Aeropostale store in Paramus, N.J. For retailers, the back-to-school shopping season is the second most important of the year, after Christmas.

July's dismal unemployment report, released Friday by the Labor Department, confirmed what millions of Americans already knew: It's still tough to find a job.

But at least for people who do have jobs, the report held a bit of encouraging news: Wages ticked up slightly last month after stagnating in June. Workers' pay was 1.8 percent higher than the same month last year.

By historic standards, that level of wage growth is weak. But government statistics show employers aren't withholding raises. Rather, they are directing the compensation increases to the rising costs of health care benefits.

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As a result, employers are feeling squeezed by higher benefits costs, and workers are feeling squeezed by very slow wage growth.

That pinch worries retailers who are launching back-to-school promotions. They are hoping shoppers can afford to buy lots of shoes and backpacks and jeans in coming weeks. For retailers, the back-to-school shopping season is the second most important of the year, after Christmas.

Early indications point to only modest sales gains this year. The National Retail Federation predicts families with school-age children will spend about 10 percent more for school supplies and clothes compared with last year. Given how depressed sales were last summer, however, that level of growth would still mark a subdued recovery.

Sales reports also show most shoppers are still watching their pennies. The No. 1 destination for shoppers continues to be the big discount stores, and most people are paying cash or using debit cards to avoid running up more debt.

Another problem for retailers is the exceptionally high unemployment rate among teenagers, who traditionally do a lot of the back-to-school shopping. The July jobs report showed that more than 1 in 4 teen job-seekers cannot find work.

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The lack of spending money among young people is being felt at teen clothing stores, many of which released disappointing July sales reports last week. Now chains, like Abercrombie & Fitch and American Eagle Outfitters, are slashing prices on jeans. Others have been staging buy-one-get-one-free promotions.

But retail analysts say deep discounting alone won't change the profit picture for many stores. The key to the recovery is a stronger job market with better wage growth.