Consumers being cautious with spending at retail stores

Deep discounts on summer leftovers and hot weather drove shoppers into malls in July, but they remained choosy, resulting in only overall modest gains.

The sluggish spending, which is being compared with a miserable July 2009, bodes poorly for the back-to-school season as Americans step up saving amid a stalling economic recovery. For shoppers, it could mean big discounts. Already, teen clothing sellers like Abercrombie & Fitch are offering generous price cuts on new jeans to lure shoppers.

Chain-store sales rose 2.8 percent in July, below the 3 percent to 4 percent expected, according to The International Council of Shopping Centers, based on reports from 31 retailers. That compares with a 5 percent drop a year ago. The figure is based on revenue at stores opened at least a year and are considered a key indicator of a retailer's health.

Macy's Inc. posted a stronger-than-expected revenue increase, but rival J.C. Penney Co. suffered a surprise drop. Penney warned that it second quarter will come at the low end of its previous forecast, sending shares down.

Macy's chief executive Terry Lundgren said the back-to-school business was off to a "great" start, helped by its newly launched Material Girl fashion collection. Another big winner was Limited Brands Inc., operator of Victoria's Secret and Bath and Body Works, which posted robust gains.

Teen clothing stores were among the hardest hit, with The Buckle Inc. and The Wet Seal Inc. suffering declines. But analysts say that deep discounting from Abercrombie & Fitch and American Eagle may have hurt Aeropostale Inc., which since the recession has been a bright spot because of its own lower prices. Aeropostale posted a slim increase. - AP