Holiday spending meets bleak expectations, early analysis finds

December 26, 2007|By New York Times News Service

American consumers, uneasy about the economy and unimpressed by the merchandise in stores, delivered the bleak holiday shopping season retailers had expected, if not feared, according to one early but influential projection.

Spending from Thanksgiving to Christmas rose just 3.6 percent over last year, the weakest performance in at least four years, according to MasterCard Advisors, a division of the credit card company.

"There was not a recipe for a pickup in sales growth," said Michael McNamara, vice president for research and analysis at MasterCard Advisors, citing higher gas prices, a slowing housing market and a tight credit market.

Strong demand at the start of the season for a handful of must-have electronics, such as digital frames and portable Global Positioning System navigation devices, trailed off in December. And robust sales of luxury products could not make up for sluggish sales of jewelry and women's clothing.

What did eventually sell was generally marked down - once, if not twice - which could hurt retailers' profits in the final three months of the year.

"Stores are buying those sales at a cost," said Sherif Mityas, a partner at the consulting firm A.T. Kearney, which specializes in retailing.

MasterCard's SpendingPulse data, scheduled to be released today, cover the 32-day period from Nov. 23 to Dec. 24. The information is based on purchases made by more than 300 million MasterCard debit and credit card users and broader estimates of spending with cash and checks. It encompasses sales at stores and on the Internet and of gift cards, gasoline and meals at restaurants but is not adjusted for inflation.

Excluding gas purchases, overall holiday sales rose a lackluster 2.4 percent, the credit card company said.

The final numbers are at the low end of MasterCard's already modest expectations, which were reduced in the middle of the season. Retail analysts and economists, who scrutinize holiday spending for clues about the health of the American economy, are unlikely to be impressed by the results.

MasterCard found that online spending rose 22.4 percent, a strong showing, given fears that Web purchases would slow after a decade of impressive growth.

Clothing sales rose a meager 1.4 percent, but there was a stark split between genders. Sales for women's apparel dropped 2.4 percent. Sales for men's apparel rose 2.3 percent. Analysts said women complained of dreary fashions.

Luxury purchases rose 7.1 percent, as the well-heeled splurged on $600 Marc Jacobs trench coats and $800 Christian Louboutin shoes. Footwear, at all prices, proved a bright spot for the clothing industry, with sales surging 6 percent.

The American consumer has perplexed analysts this season. Retail experts confidently predicted that shoppers, uncertain about the economy, would trade down from midprice chains, such as Macy's and Nordstrom, to discounters with steeper discounts.

To a certain degree, they did, mobbing low-price chains such as T.J. Maxx and Marshalls. But the discount retailer Target has struggled this season. Yesterday, it said its sales could fall by 1 percent in December compared with last year, an anomaly for a retailer accustomed to at least 4 percent monthly sales growth during the past three years.

In the end, analysts said, the biggest winners are likely to be Wal-Mart, which emerged as the undisputed low-price leader this season, and Best Buy, which became the destination for competitively priced electronics.

MasterCard Advisors predicts that shoppers will spend up to $60 billion over the next seven days, as they redeem gift cards and exchange unwanted ties and sweaters for the items they truly want.

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