A Not-So-Merry Christmas for Retailers

It seems Santa had few gifts for retailers this holiday season, as December sales plummeted 4%, excluding automobiles and gasoline. Relative to last year’s gain of 2.4%, the sales drop-off is worse than industry experts had called for. Analysts believed rampant promotions and price cuts would cushion sales, and forecast anywhere from a 1% drop to a 2.2% gain.

Many retailers had hoped that the end-of-the-year holiday shopping, spurred by discounts, would give them the boost needed to pay down debt and fend off insolvency heading into the new year. This turned out not to be the case, and we can expect at least a few retailers to follow in the footsteps of Circuit City and Linens ‘N Things over the next few months.

Certain areas suffered more deeply than others, with luxury goods being one troublesome standout. Sales dropped 21.2% in December, compared to a 7.5% rise last year. Including jewelery, sales plummeted 34.5%. Electronics and appliances didn’t fare much better, with sales falling 26.7% compared to a 2.7% gain last year. Women’s apparel, which is typical much more sensitive to the economy than men’s apparel, fell 22.7%, after dropping 2.4% last year.

A Shining Star?

Internet retail was the relative bright spot, although some would say it’s merely the smallest lump of coal in the retail stocking. Sales fell 2%, after soaring 22.4% last year. Amazon.com (AMZN) issued a press release claiming the company’s “best ever” holiday sales season. The online retailer received a 6.3 million orders on its peak sales day of December 15, setting a record pace of 72.9 items sold per second. Top sellers for the company included the Nintendo Wii, a Samsung 52-inch LCD television, and the 8 GB iPod Touch. A worrisome note, however, is that the company decided not to mention the dollar amount sold, or any hint as to the state of profit margins during the massive sale. Moving merchandise doesn’t mean much if somewhat healthy margins aren’t maintained.

Everything Must Go!

Inventory build-up is a concern for many physical retailers, however. Most stores had anticipated much higher volume due to promotions, and stocked up accordingly. They seem to have overshot the mark, and are now moving up January clearances to the end of December. Websites of high-end retailers such as Saks (SKS) and Neiman Marcus have already begun promoting deep post-Christmas sales, advertising discounts as high as 75%.

With many consumers likely tapped out, we may be seeing after-holiday clearance sales go through January and deep into 2009. It would seem that the next year could be even worse for retailers than 2008, but with sustained price cuts, the consumer may finally be getting a break. Deep discounts don’t mean much without a job, however, and many economists forecast unemployment to continue its ascent. Looking back, it appears the economy had a relatively modest wish-list this season, and still came up disappointed. There’s always next year, some may say, but I wouldn’t get my hopes up.

-Harry Lacheen

Disclosure: None.

Comments

[James G:]

Amazon's picking-and-chosing of what numbers to report to the public reminds me Madoff's tactics to fool his investors. "Figures don't lie but liars figure.". This kind of reporting by Amazon and their ilk is why the public is growing more fearful and seeking a safe haven for their investment dollar. I would guess that over half of this years maket decline is related to fear and mistrust. "Screw me once, shame on you. Screw me twice shame on me."

2008 Dec 29 04:25 PM