Retailers had a blue Christmas

Holiday sales at lowest levels in a decade

4th-quarter estimates cut

Cooling economy, high energy costs, bad weather blamed

January 05, 2001|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Holiday retail sales growth was the worst in at least a decade because of a slowing economy, high energy prices and bad weather, industry experts said yesterday as retailers reported generally flat or lower December sales.

The disappointing season prompted several big retail chains yesterday to cut fourth-quarter estimates after weeks of offering large discounts to lure last-minute shoppers.

Hit hardest were department stores, specialty apparel retailers and discounters such as Wal-Mart, Target and Kmart, which reported lower sales than expected.

"We are dealing with a very cautious consumer who is operating under the influence of some level of pessimism," said Kurt Barnard, president of Barnard's Retail Consulting Group in New Jersey, which forecasts retail industry trends and consumer spending patterns. "Americans have less money in their pockets than they had a year ago. They're paying approximately 30 percent more for gasoline, 40 to 50 percent more for home heating oil and owe $650 billion on their credit cards. Meanwhile, after-tax income increased only 5 percent."

Barnard added, "They will buy what they need, but they will not buy frivolously, impulsively or on a whim. That is what put a lid on consumer spending in December."

A survey of 82 chain stores by the Bank of Tokyo-Mitsubishi showed that December sales at stores open at least a year were 0.7 percent above 1999 levels - a nearly flat month, compared with the 6.7 percent same-store sales increase in December 1999.

"Clearly, this was a difficult season for retailers. This is the worst I have seen in at least 10 years," Michael Niemera, a retail industry analyst at Bank of Tokyo-Mitsubishi Ltd. He said retailers had been expecting December sales gains of 3.5 percent.

The Federal Reserve's move Wednesday to cut interest rates in an attempt to moderate the economic slowdown comes too late to help most retailers, whose fourth-quarter ends this month. Analysts said it would be several months before the rate cut would have an impact.

Wal-Mart Stores Inc. reported that sales at stores rose 0.5 percent for the five-week period, compared with the end of 1999. Target Corp. reported that comparable store sales in December dropped 0.1 percent, though net retail sales for the five weeks that ended Saturday increased to $6.092 billion from $5.777 billion a year earlier. Same-store sales for Kmart Corp. rose slightly at 0.7 percent compared with last year, despite positive results from a marketing blitz that kept doors open for 86 consecutive hours before Christmas.

In specialty apparel, Limited Inc.'s same-store sales were unchanged, performing well below forecasts of as much as a 5 percent gain. The Gap recorded sales figures 6 percent lower than last year on a same-store basis.

The biggest winner of the season appeared to be Kohl's, which recorded same-store sales 14.8 percent higher than those in 1999. Talbots Inc. outperformed the industry with sales up 12.9 percent.

Jos. A. Bank Clothiers Inc., based in Hampstead, also performed well. Bank posted the highest one-month sales for December in the company's 96-year history. Comparable-store sales increased 12.6 percent and Internet sales increased 134 percent, while catalog sales decreased 20 percent, primarily because of Internet sales.

"Our good fortune is due to hard work and good management," said Robert N. Wildrick, chief executive of Bank. "We recognized last September that the economy was going to slow. So we got very sharp with our pricing. We sold a higher percentage of our goods at better prices. We offered higher-quality goods. We brought in more key items. We made sure we had the highest in-stock merchandise in our stores so that our customers didn't waste fuel coming to our stores and not finding what they wanted."

Though the holiday season started with a strong Thanksgiving weekend, sales soon started falling, industry experts said.

"Everyone predicted it would pick up in that fourth week, but guess what?" said Marie Driscoll, retail analyst for Argus Research, based in New York. "We got hit with all that bad weather. You're also comparing this year's sales figures to when we had unprecedented strength last year.

"You had people buying crystal glasses to drink champagne in for the new year and bottled water to prepare for Y2K," Driscoll said. "You had incredible amounts of splurging last year, and contextually you also had a very strong stock market. This year, most retailers suffered decreased traffic."

However, Driscoll said, digital product sales were very strong this season. Electronics retailer Best Buy reported that sales for digital products doubled this year to $457 million from $227 million last year. Drug stores also performed well because of increased pharmaceutical sales, Driscoll said.

But the season proved grim for others. Sears, Roebuck and Co. said it will close 89 stores and fire about 2,700 workers after December sales dropped 1.1 percent. J. C. Penney Co. said sales at its department stores fell 1.6 percent for the holiday season, and the May Department Store Co., parent of Hecht's and Lord & Taylor, reported an increase of 1 percent in sales compared with last year.

"A lot of stores like the Gap did promotional pricing," Driscoll said. "But when you bring the price down, it goes into your margin, and it will reduce your earnings. That will be reflected in their fourth-quarter earnings."

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