The International Council of Shopping Centers-UBS sales tally posted a 3.1 percent gain in December, in line with its original expectations. That means for the November-December period, same-store sales averaged a 2.8 percent gain, slightly below the original forecast of 3 percent. The tally is based on same-store sales, or sales at stores open at least a year; these sales are the industry's standard for measuring retailers' health.
Michael P. Niemira, chief economist at ICSC, said, "The tone was more pessimistic than optimistic. I think when you look back, November-December may be a good bellwether for the industry performance for this year."
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"Clearly, this was a promotional Christmas," he said. "Consumers clearly waited until the last minute."
Such aggressive discounting led a number of merchants including Zale Corp., BJ's Wholesale Club Inc., Gap Inc. and AnnTaylor Stores Corp. to cut their profit outlooks.
Based on 51 stores that reported, Perkins said 23 retailers beat sales expectation, 25 missed estimates and three stores matched projections.
Something I have noticed over the last five holiday sales cycles is the last-minute nature of shopping. There has been an interesting cycle of consumers waiting for stores to lower prices closer to the holidays. Now I think consumers are expecting discounting closer and closer to Christmas. Therefore, it seems people are waiting for those discounts to emerge.
A little under 50% of retailers missed expectations. That's a big number of misses -- especially considering corporate earnings have been very strong for most of this year.
Also consider that an industry economist made the following statement: "The tone was more pessimistic than optimistic. I think when you look back, November-December may be a good bellwether for the industry performance for this year." That's a refreshing amount of honesty from someone who you would think would be a complete industry shill.
From Bloomberg:
U.S. retailers including Wal-Mart Stores Inc. and Target Corp. posted December sales that rose less than a year earlier as stores lowered prices to lure holiday shoppers.
Federated Department Stores Inc. said sales at stores open more than a year increased 4.4 percent, falling short of estimates. Gap Inc.'s sales declined and the company lowered its profit forecast by 18 percent. Wal-Mart, the world's largest retailer, reported a 1.6 percent increase.
Declining sales growth bodes ill for holiday-season profits, which make up about a third of the industry's annual earnings. Price cuts on flat-screen televisions and leftover cold-weather clothes following weeks of warm weather probably undermined fourth-quarter profits, analysts said.
This is not good news. Remember that Circuit City announced lower Christmas sales in early December. Wal-Mart substantially cut a specific flat screen television early in the season and all the retailers had to follow suit. This hurt margins at electronics stores.
From Reuters
U.S. retailers posted disappointing December sales on Thursday, hurt by warm weather and procrastinating shoppers who waited for deep discounts before wrapping up their holiday shopping.
The lackluster sales put prospects for the fourth quarter in jeopardy, with retailers like Federated Department Stores Inc. (FD.N: Quote, Profile , Research), Chico's FAS Inc. (CHS.N: Quote, Profile , Research) and Cache Inc. (CACH.O: Quote, Profile , Research) warning their results could be less than expected.
"This is going to be the third month in row ... that the majority of retailers in our index have missed expectations," said Ken Perkins, president of Retail Metrics, which tracks 57 retailers. "That's a little bit concerning as we head into '07"
Three months in a row that retailers have missed expectations. That means tow things. First, the Census Bureau's last consumer spending number -- which was up 1% -- is probably off. Second, three months of a slowdown indicates we probably have a trend in place. Considering that consumer spending comprises 70% of GDP growth, the trend in most definitely not our friend right now.
4 comments:
Another factor that is becoming more relevent in the past couple years is the growing popularity of the retail store gift card. These sales essentially get counted twice. Once, when the card is purchased and treated as sales even though no goods trade hands, except the plastic card. Then, later when the bearer of the gift card usues the card, the goods that they buy are counted as sales and the gift card is just treated as a form of payment. I realized all of this when I was purchasing one this christmas season and wondered why retailers are so aggressively selling them. I think this might be part of the reason. I wonder if analysts are considering this, especially when considering January sales data, when most of the cards would be used.
Gift cards have gotten extremely popular, especially this year. I heard somewhere that 70% of shoppers reported that they were giving at least one gift card to someone on their christmas list, mostly men giving them.
This is another reason why it is important to look at Inventories at the beginning of February in terms of year on year change. If retailers are looking to wind down their inventory, this would be one of the ways that they accomplish it ... and since they will have an idea how many of their gift cards are outstanding, they will be able to tune this far more than the pre-Christmas shopping season.
Gift cards are only counted once, when the card is redeemed and they are another factor that contributes to the lateness of the Christmas buying spree.
The big disappointments were in apparel and a lot of that had to do with weather, unseasonably hot on the east coast, blizzards in the mountains and plains and flood in the Pac NW. All had a dampening effect on sales.
Gift cards are pushed aggressively because so many of them get lost or thrown out before they are used up, it amounts to about eight cents on the dollar on each card going directly to the seller's bottom line. It's called 'breakage' and it often makes the cards profitable in and of themselves, even ignoring getting the float off of having the consumer's money for N days before the card is redeemed for goods.
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