LOWER OUTLOOKS: Macy's Inc. posted a lower second-quarter profit and warned that its full-year earnings will be below expectations. Meanwhile, Liz Claiborne Inc., a key supplier to the department store chain, pared down its own profit forecast. The Commerce Department also announced that retail sales in July were the weakest since February.

WHAT IT MEANS: The reduced outlooks suggest that the sluggish consumer spending will persist as retailers face the critical back-to-school and holiday shopping seasons. "We are not expecting a significant macroeconomic recovery in the near future," Liz Claiborne's Chief Executive William L. McComb said in a statement.

REALITY CHECK: The good news for retailers and apparel companies is that they have been reacting to the spending slowdown by slashing expenses and cutting inventory. In fact, lower levels of discounted summer goods hurt sales but boosted gross profit margins at Macy's. Still, analysts believe that profits in the second half could be further depressed as consumers remain cautious about spending.

WHAT'S NEXT: Stores are working hard to differentiate themselves in order to woo shoppers. Starting this fall, Macy's will be the exclusive department-store retailer for Tommy Hilfiger U.S.A. men's and women's sportswear. Also this fall, as part of a partnership with FAO Schwarz, about 75 full-size FAO toy stores will open at Macy's stores across the country, along with about 200 smaller shops.