Retailers brace as consumers cut back

NEW YORK - J.C. Penney Co. is the first major retailer to say that consumer spending fell severely in the first quarter, but it looks like it won't be the last.

The century-old retailer, which says that half of all U.S. families make up its customer base, not only slashed earnings and comparable-store sales guidance, but said it sees difficult conditions continuing for the rest of the year.

Industry representatives say Penneys won't be an isolated case -- given the way the economy is going -- and that there is no immediate relief in site.

Those likely to be hurt the most are department stores such as Kohl's Corp. and potentially Macy's Inc. and Sears Holdings Corp., analysts say.

In industry jargon, department stores are stuck between "diamonds and dollars." Many high-end customers are striving to maintain their loyalty to retailers such as Tiffany & Co., and others are going downstream to discounters such as dollar stores.

The plight of retailers is a generally broad one, but department stores in particular are going to have to do some serious strategic thinking.

"They would probably consider themselves in competition right now with Wal-Mart and Target," with the discounters standing to do well, said Scott Krugman, a spokesman for the National Retail Federation, the industry's primary trade group.

"Without a doubt, this is one of the most challenging periods we've seen since the last recession in 2001," he said.

Penneys said Friday that it expects first-quarter income of about 50 cents per share, down one-third from its earlier forecast for profit of 75 to 80 cents per share. Analysts had been expecting 75 cents per share, according to a survey by Thomson First Call.

Shares of Penneys fell $3.04 on Friday, or 7.5 percent, to $37.48, after dropping as much as 13.6 percent earlier in the day's session.

Stock in other retailers also fell Friday.

Shares of Kohl's were off $2.19, or 4.9 percent, to $42.33; Macy's lost $1.39, or 6 percent, to $21.97; Sears shares dropped $3.28, or 3.1 percent, to $102.20; and Target Corp. shares lost $1.29, or 2.5 percent, at $49.69.