Lackluster November sales dampen retailers' hopes

Black Friday rush is short-lived

same-store revenue up just 1.7%

December 03, 2004|By Lorene Yue | Lorene Yue,CHICAGO TRIBUNE

Todd Jones, The bargain hunters who stormed stores the day after Thanksgiving for crack-of-dawn deals didn't stay long, and they practically abandoned many retailers for the rest of the holiday weekend.

The result was lackluster November sales that fell below expectations and are a potential blow for retailers counting on a robust holiday season to boost the bottom line.

Gap Inc., Limited Brands Inc., Federated Department Stores and even the mighty Wal-Mart Stores Inc. reported disappointing November numbers yesterday. Same-stores sales were up 1.7 percent, compared with the 3 percent predicted by Michael Niemira, chief economist for the International Council of Shopping Centers.

"There was some surprising softness beyond even what we expected," Niemira said. "It remains to be seen how it will all shape up for the season."

But there were some standouts among the dismal reports. Neiman Marcus Group reported an 8.4 percent gain and Saks Inc. had a 2.4 percent increase.

Their numbers show that shoppers are willing to pay for luxury brands. Niemira's luxury retail index showed a 5.2 percent gain.

It's too early to tell if retailers will see more red than green this holiday season, but there is some optimism for a December bounce to salvage sales.

"Eight of the 10 last Christmas periods have been disappointing," said Todd Jones, analyst at PNC Advisors in Philadelphia. "Still, I think we will have a fairly good period."

Sears, Roebuck and Co., buoyed by the best day-after-Thanksgiving sales in its history and its strongest pre-holiday showing in a decade during the Saturday before Thanksgiving, turned a 2.8 percent increase at stores open for at least a year. Same-store sales are the traditional measure of a retailer's performance since it is believed to smooth out anomalies from new stores.

The November increase marked the second consecutive month of gains from the retailer after a string of poor reports. March was the last time Sears reported a monthly sales gain.

"It's a very gratifying start to the holiday season," said Ted McDougal, a spokesman for Sears, which is being bought by Kmart Holding Corp.

Retailers and industry experts are at a loss to explain November's poor showing. The retail industry rakes in most of its profits during the fourth quarter and the stretch between Thanksgiving and Christmas is critical.

"Something's changed and I don't know what it is," Niemira said.

It could be a combination of sagging consumer confidence and lack of deep price discounts.

Shoppers struck stealthily in the early morning of Black Friday, turning out in droves for $20 DVD players, $50 digital cameras and other spectacular deals. But once the door-busters dried up, many bargain hunters went home empty-handed instead of sticking around to shop.

Traffic for the remainder of the weekend was light, forcing retailers to reassess their expectations. "There was no follow-through," Niemira said.

Wal-Mart, which held off on aggressive price cuts early in the season, had to rethink its approach when shoppers snubbed them. Instead of the 2 percent to 4 percent November sales gain Wal-Mart had expected, sales came in at 0.7 percent above last year's number and the retail leader said it would begin cutting prices sooner.

Indeed a Deutsche Bank analyst reported yesterday that Wal-Mart will start a newspaper ad blitz today to reinforce its low-price message. Wal-Mart will run the ads in 15 major markets, then follow them with TV and radio commercials over the weekend.

It's an unusual move for Wal-Mart, according to the report, because the company spends relatively little on newspaper advertising compared with other retailers.

The failure to offer incentives quickly could keep customers away, as Wal-Mart's situation shows. Yet the dangerous side to deep discounts is that they put a retailer's profit margins at risk.

This year consumers aren't being as price conscious, either. Luxury goods and items with a higher perceived value are fetching full price.

"They pick three or four categories - cars, home goods, food away from home, travel - and trade up," said Michael Silverstein, a senior vice president at Boston Consulting Group's Chicago office.

"They balance their budgets by trading down. Our most recent research shows that 94 percent of middle-class consumers are dividing their purchases in this way."

Gift cards play another unknown role in holiday sales.

Retailers don't book gift cards as sales until they are redeemed. While thousands may be snapped up in the next few weeks - an estimated $45 billion were sold last year and expectations are for 25 percent growth this year - retailers won't reap the rewards until later.

The Chicago Tribune is a Tribune Publishing newspaper.

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