Memorial Day sales crucial to retail recovery

After their sales took a beating in April, retailers need a big holiday shopping weekend to cap off a much-improved May.

By Parija B. Kavilanz, senior writer

NEW YORK (CNNMoney) -- While plenty of Americans make grilling and beachgoing a priority over the Memorial Day weekend, retailers are hoping that shopping also made it high on consumers' holiday to-do list.

Historically, Memorial Day tends to be big sales weekend for a handful of categories like summer clothes, home furnishings and seasonal outdoor merchandise like patio furniture, garden and grilling products.

Although this three-day weekend typically isn't regarded as a critical shopping holiday for merchants the way July 4th and Labor Day weekends are, that could be a little different this year, said Britt Beemer, chairman of retail market research firm America's Research Group.

"If sales are bad over the weekend, then the fear is that retailers will have no momentum going into the July 4th holiday," Beemer said.

This is especially worrisome given that retailers suffered disastrous sales last month.

According to sales tracker First Call, combined sales at chain stores open at least a year - a key measure of retail performance known as same-store sales - fell 1.8 percent in April. That's the worst performance on record since 2000, when the firm began tracking that measure for 56 of the biggest retailers including Wal-Mart, Target (Charts, Fortune 500), J.C. Penney (Charts, Fortune 500), Gap (Charts, Fortune 500) among others.

While some chains blamed April's cold and wet weather for hurting sales of summer clothes, others like Wal-Mart, the world's biggest retailer, said record-high gas prices and the ongoing housing slump are eating into its consumers' wallets.

To be sure, low-end sellers like Wal-Mart (Charts, Fortune 500) are especially vulnerable to these types of economic shifts since they mostly cater to paycheck-to-paycheck consumers.

For that reason, Beemer expected discount chains to push lots of promotions over the weekend.

"Plenty of people are looking for deals, deals, deals. That's the only way retailers will get consumers to buy something, because a lot of people are telling us that they are struggling with less money to spend because of paying more for gas, higher property taxes and home insurance," Beemer said.

Indeed, department stores are awash in red sales signs. J.C. Penney is offering as much as 50 percent off on clothing, and 50 to 60 percent off on home furnishings such as bedding and bathroom products.

Sears (Charts, Fortune 500) has taken 50 percent off on swimwear, and made more moderate discounts on patio furniture and its range of Kenmore grills.

Mid-priced department store chain Macy's, operated by Federated Department Stores, is offering discounts of between 10 to 50 percent on apparel and home decoration items.

Craig Johnson, president of retail consulting group Customer Growth Partners, said he was hoping to get the first projections of the three-day sales tally on Tuesday, and added that he felt optimistic.

"My sense is that with the warmer weather finally here, retailers may have a bang up holiday weekend," said Johnson. "If not, it could be a real bad omen for them."

A solid sales finish on Memorial Day would cap off a much stronger month of May for retailers. According to First Call, same-store sales were tracking up 2.8 percent mid-month, and up about 4 percent excluding sales at Wal-Mart.

Besides Macy's performance, Johnson said he was also keeping close tabs on the home improvement chains Home Depot (Charts, Fortune 500) and Lowe's.

"With Home Depot and Lowe's, the question is whether sales picked up just for seasonal items like barbecue and patio products, or also for special order projects like deck installations which are higher-margin sales for them," Johnson said.

According to Lowe's spokeswoman Chris Ahearn, gas grills, flags and seasonal plants were among the top-selling items at Lowe's stores over the weekend.

"In terms of store traffic, it was a very busy weekend. We saw wonderful weather around the country and that also brought people out to our stores," she said.

For these two retailers, the housing downturn has delivered a double whammy by denting sales of building supplies, and limiting consumers' ability to pull cash from their homes to finance home repairs and renovations.

Home Depot and Lowe's, both of whom recently reported weak first-quarter results, warned that their businesses could suffer for the rest of the year unless the housing market stabilizes.

Wal-Mart, J.C. Penney, Macy's and Sears could not immediately be reached for comment. Top of page