The sales reported Thursday were the worst in at least eight years, since Thomson Reuters - which tracks monthly sales for 34 of the nation's largest retailers including Wal-Mart (WMT, Fortune 500), Gap (GPS, Fortune 500), Sears (SHLD, Fortune 500) and J.C. Penney - began tracking the results in 2000.
October same-store sales, or sales at stores open at least a year, fell 0.7% and were much worse than an initial forecast of a 0.3% drop, according to Thomson Reuters.
The firm said 56% of retailers it tracks missed analysts' estimates, 41% beat and 3% met forecasts.
And October won't even mark the bottom of a year-long slump in retail sales, according to Stephen Hoch, director of Wharton Business School's Jay H. Baker division of retailing.
That's a big problem for an economy that's already in distress since consumer spending also fuels two-thirds of economic activity.
"It will get more brutal," Hoch said. "The further you move away from non-discretionary issues the worse it's going to get."
In past economic downturns, Hoch said consumers have continued to spend. Not this time.
"Even if they want to shop they just don't have the same access to money through credit that they've had in the past," Hoch said. "The consumer is in a dangerous state of malaise."
A terrible October also elevates concerns about the November-December holiday gift-buying period which can account for as much as 50% of merchants annual profits and sales.
Some retail analysts are predicting a first-ever decline in holiday sales.
"It looks pretty bleak except for Wal-Mart," said Ken Perkins, president of sales tracker Retail Metrics. "Wal-Mart is definitely gaining market share at the expense of other merchants."
Specialty sellers were especially hit hard last month, including clothing seller Gap Inc. (GPS, Fortune 500) which reported a 16% drop in same-store sales and Pacific Sunwear which saw an 11.1% drop in sales. Limited Brands, owner of Victoria's Secret and Bath & Body Works, said sales declined nine percent.
Sales at Wal-Mart's rival Target fell 4.8%
Among department store chains, sales at Macy's (M, Fortune 500) fell 6.3% and the retailer said its expects November same-store sales to "decrease in the low double digits" on a percentage basis.
Wal-Mart, however, which typically doesn't consider itself to be a gift-buying destination, could emerge in surprisingly good shape after the holiday season.
In October, the world's largest retailer actually reported better-than-expected monthly sales as more cash-strapped consumers flocked to its discount stores for bargains on groceries and household goods.
Wal-Mart said its same-store sales rose 2.4%, beating its own forecast for a 1% to 2% increase in the measure for the month.
The company said store traffic was driven in part by demand for Halloween-related merchandise. Also, the retailer said its aggressive marketing campaign highlighting price-savings for consumers in a tough economy appeared to be resonating well with its customers.
Unlike most of its retail rivals, the discounter's low-price model now has new-found appeal not just with low to middle-income households but also with higher-income shoppers who are trading down on discretionary goods.
"We see more customers shopping more often at Wal-Mart," Wal-Mart U.S.A CEO Eduardo Castro-Wright said in a statement. "Customers see that we are broadening the price gap against our competitors. They saw it during the Halloween season and they will continue to see it during the Christmas shopping season."
And for the first time, Wal-Mart will introduce a holiday gift section in its stores, executives revealed last month.
For November, Wal-Mart expects same-store sales to rise between 1 to 3%.
But most other merchants had a disappointing month.
Perkins said he's not that surprised by the sales weakness in October.
"This was in the works," he said. "Retail sales are closely linked with the job market. Continuing job losses will keep hurting retail sales."
Perkins expects retail sales to be soft well into 2009 but there could be one silver lining for merchants.
"Comparisons do get easier in 2009 so that could help merchants a bit," he said.
Retailers face dire holidays forecast
Holiday job picture not so jolly
