Worst December in years for U.S. merchants Those big discounts didn't get shoppers to open wallets

Darker days ahead?

Bankruptcies, layoffs predicted -- unless sales perk up at stores

January 05, 1996|By Alec Matthew Klein | Alec Matthew Klein,SUN STAFF

If the Grinch stole Christmas, consumers drove the getaway car.

Confirming dire predictions, retailers across the nation reported yesterday their worst December sales gains in at least a decade, battered by reluctant shoppers, a glutted market and bad weather to boot.

"Consumers are just watching their pocketbooks and, unless there's value, they're not buying," said Mark A. Millman, president of Millman Search Group Inc., a leading retail consulting firm in Lutherville. "We're not in a recession, but people are uncomfortable about their jobs, the economy, the state of the government shutdown. There's a lot of concern out there. Their first reaction is not to spend money unless necessary. I don't see any let-up."

Deep discounts didn't lure shoppers to stores. But by slashing prices, national retailers ate into their profits during the holiday season -- a time when most merchants generate 30 percent to 50 percent of their annual sales. The fallout prompted many retailers to caution Wall Street that their fourth-quarter earnings would be lackluster.

Analysts warned of even worse to come -- a rash of bankruptcies and layoffs in the U.S. retail sector, which employs an estimated 20 million people, about 13 percent of the work force. Already, some analysts are having flashbacks to the 1990-91 recession.

"It's almost a siege mentality that's hitting the Christmas season, and it began really after Labor Day," said Otto Grote, a retail analyst with Derby Securities in New York. "Across the board, what I'm seeing is that financial analysts are carrying estimates that reflect growth rates still in the 20 percent range this year, and yet most of the stocks are selling at one-half of these growth rates. You don't see that very often. It means probably that financial analysts are too optimistic about 1996."

After the results released yesterday, those forecasts may change. Salomon Brothers Inc. said its monthly retail sales index rose 1.8 percent, the smallest gain for December in the 10-year history of the index.

December sales in stores open at least a year -- also called same-store sales -- rose 1.7 percent, the smallest increase for that month in 10 years, according to the Bloomberg Same-Store Sales index and Stone & McCarthy Research Associates.

Few retailers were left unscathed. Wal-Mart Stores Inc., the nation's largest retailer, managed a 1.1 percent increase in sales at stores open at least a year, its lowest monthly gain this year. J. C. Penney Co.'s department stores posted a 4.2 percent decline. And Best Buy Co., the nation's second-biggest seller of consumer electronics, posted a 3 percent gain, lower than expected.

Same-store sales also dropped at specialty-apparel retailers, and even consumer electronic retailers, which were expecting a major Christmas boon, suffered sluggish sales.

Maryland-based retailers didn't fare any better, including home-improvement chain Hechinger Co. of Landover, which reported a 7 percent drop in same-store sales in December, its ninth straight month of faltering revenue.

Merry-Go-Round Enterprises Inc., the Joppa-based fashion retailer operating under bankruptcy protection since January 1994, yesterday did not report monthly sales. It offered no explanation.

U.S. retailers have been dragged down by more than bargain-hunting consumers, analysts say. Merchants are fighting over a limited number of consumer dollars. Also at work are modest wage gains, high consumer-debt levels and uncertainty over the fallout from the budget battle in Washington. Mother Nature did her part, belting retailers with snowstorms that covered the Northeast days before Christmas, persuading many consumers to keep warm rather than plow through to the shopping malls.

Some retailers did cash in over the holidays, however. Sears, Roebuck & Co. gained 6.8 percent -- its biggest month since July -- on higher sales of women's apparel, fine jewelry, shoes, consumer electronics and home-improvement items. Kmart Corp. said its sales rose 4.5 percent for the month, while Dayton Hudson's Target unit posted a sales increase of 5.3 percent. But they were the exceptions, and analysts say that an industry shakeout -- bankruptcies, consolidations -- is likely over the next several months.

"What is happening is, there's an increasing concern on the part of a growing number of Americans about job security," said Mr. Grote. "The Federal Reserve and Washington apparently are being fooled by the numbers that this economy is expanding when in actuality consumer demand is shrinking."

Yet, amid all this doom and gloom, there is a silver lining, analysts say: To move merchandise, retailers will be forced to offer shoppers more discounts.

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