Holidays disappoint

The Baltimore Sun

Last-minute discounts and special promotions didn't appear to help salvage a lackluster holiday shopping season for many of the nation's retailers with various merchants reporting disappointing December sales yesterday.

Retailers are counting on customers to spend their gift cards this month to spur sales. Merchants record revenue on gift cards once they are redeemed, making January a crucial time for retailers.

Though many of the nation's largest retailers such as Target Corp. and Gap Inc. posted weaker-than-expected results, some luxury stores such as Nordstrom Inc. and Saks Inc. posted strong December returns. And some retail analysts pointed to the continued growth in Internet sales, which they believe will improve the holiday season figures.

Overall, December sales at U.S. chain stores opened at least a year - or same-store sales, a key measure of performance - rose 3.1 percent, according to the International Council of Shopping Centers. That figure was below the 3.5 percent gain in December 2005. But the growth posted last month exceeded the group's 2.5 percent forecast.

"It's a moderate gain," said Michael Niemira, chief economist and director of research at the trade group. "You had some really good performing sectors or stores, but there are also lots of weaknesses."

Sales at several retailers, particularly apparel stores, came in below expectations.

Gap Inc. and AnnTaylor Stores Inc. reported that same-store sales fell 8 percent and 5.3 percent, respectively. Both cut their quarterly earnings targets after posting the weaker-than-expected results. Jewelry retailer Zale Corp. and BJ's Wholesale Club Inc. also cut profit outlooks yesterday.

Target said sales in December increased 4.1 percent, but below an estimate of 4.5 percent.

Rival Wal-Mart Stores Inc. reported its weakest December performance since 2000, when it posted a 0.3 percent gain, according to Thomson Financial. But the world's largest retailer rebounded from dismal results in November by posting a 1.6 percent increase in December.

Sales at Macy's owner Federated Department Stores Inc. rose 4.4 percent, missing Wall Street expectations as the retailer makes itself into a national brand. Earlier this year, it acquired May Department Stores Co., including the former Hecht's stores in the Baltimore-Washington area. Federated's December results did not include performance at former May stores.

Terry J. Lundgren, Federated's chairman, president and CEO, said in a statement that sales at converted May stores improved in December after lagging behind Macy's stores in October and November.

As Hecht's stores were reintroduced as Macy's in the Baltimore area, they also faced increased competition. Reading, Pa.-based department store chain Boscov's expanded to four locations here.

Britt Beemer, chief executive of America's Research Group, which tracks shopping patterns, said his research found that former May stores lost 10 percent to 15 percent in shopper traffic from a year ago.

"They underestimated how price-driven many May Co. customers were," Beemer said.

Apparel retailers suffered the most last month as customers shunned coats, sweaters and scarfs as unusually mild winter weather hit parts of the country. And customers who were worried about a slowdown in the housing market and higher energy prices waited even longer to shop after the frenzy of the day-after-Thanksgiving sales.

"Retailers this year were fighting different battles. They were fighting Mother Nature and they were fighting a lateness in shopping," said Niemira of the International Council of Shopping Centers. "And discount all you want, it's not going to do much except lower your reported sales and profits because consumers weren't there in the stores until the end."

Although some retailers did not stray from planned discounts, plenty of others, including Gap and Aeropostale, made deeper cuts in the final week before Christmas to move winter merchandise off sales floors.

Beemer, of America's Research Group, said some retailers "waited too long" to offer deeper discounts and snap shoppers out of a post-Thanksgiving sales lull.

"What they found out was they couldn't get consumers back into the stores in the last week to hit the home runs," Beemer said, calling the holiday season "underwhelming."

As retailers count on shoppers to use their gift cards this month, Beemer said bargain-conscious customers are still waiting for better deals.

Still, there were bright spots among retailers last month. Many luxury stores fared well, exceeding sales expectations.

Sales at Nordstrom Inc. rose 9 percent, doubling estimates. Saks Inc. said same-store sales increased 11 percent, beating an estimate of 5.3 percent.

And Hampstead-based Jos. A. Bank Clothiers said same-store sales rose 1.4 percent in December, beating Wall Street expectations that the men's apparel chain would post a 2.7 percent decline.

Some retail analysts remain optimistic that the season delivered for many merchants. Ernst & Young, for example, is sticking with its holiday forecast of a 6.5 percent increase for all retail stores.

Jay McIntosh, head of the retail practice at Ernst & Young, said December sales represent a piece of the overall holiday shopping picture. He noted that online sales, among the fastest growing in retail, are not included in same-store results.

In fact, online spending between Nov. 1 and Dec. 26 reached $23.1 billion, a 26 percent increase from $18.3 billion in the year-ago comparable period, according to comScore Networks, which tracks consumer behavior.

"Categories of retailers, such as apparel, may have a disappointing December, but overall, I think we're going to find that it was a good holiday season," McIntosh said.

The Associated Press contributed to this article.

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