Cautious Spenders Mean Weak Holiday Season for Retailers
Despite a strong economy, the holiday shopping season is turning out to be weaker than expected.
On Tuesday, analysts lowered their predictions for holiday sales as the shopping season entered its final week. Some analysts said retailers will be forced to take markdowns on merchandise in the coming days to avoid an inventory glut on Christmas.
Analysts blamed cautious spending on high personal debt and stock market jitters. Seasonal business thus far has been at the low end of the 3% to 5% sales increase that industry analysts had predicted for the nation and the Southland.
Retailers are expecting a late-season rush during the final seven days, a crucial period. Last year, 41% of all holiday season sales were made in the final eight shopping days.
Sales traditionally soar on the Saturday before Christmas, the biggest shopping day of the year. However, retailers in Southern California may have to mark down merchandise more heavily next week if rain disrupts shopping patterns this weekend, as expected. Retailers with stores in Southern California have been concerned throughout the holiday season about possible storms influenced by the El Nino phenomenon.
“Rain could create problems for open-air malls in Southern California,” said Michael Steinberg, chairman of San Francisco-based Macy’s West. “But cool weather and light rain might not be such a problem. That kind of weather creates more demand for blankets, sweaters and other warm clothing.”
Steinberg said Macy’s sales in Southern California and other Western states are just slightly ahead of the moderate performance of a year ago. Other major chains--Sears, Roebuck & Co., J.C. Penney and Target among them--said holiday season sales are below their expectations thus far.
At a groundbreaking ceremony outside Detroit, Kmart chairman Floyd Hall told Reuters that sales for U.S. retailers would not match some earlier forecasts. Although luxury sales have been strong, Hall said mass-merchandise goods have not fared as well.
“It does not look now that it’s going to be that good for the industry in total,” Hall said.
Analysts said that optimism about the economy isn’t translating into strong holiday sales for several reasons.
New Jersey retail consultant Kurt Barnard said consumer debt is a substantial deterrent to sales. There have been 1.3 million personal bankruptcies in 1997, nearly 50% more than in 1995, he said.
Also, although the unemployment rate is low, many consumers are concerned about job security in the wake of layoffs at high-profile companies such as Levi Strauss, Singer and Kimberly-Clark, Barnard said.
“Sales have perked up a bit the past few days, but it’s still a very restrained holiday shopping season,” he said. “Retailers have bought inventory carefully but in expectation of more sales than they have actually generated. There will be a lot of clearance sales.”
Economists viewed the holiday sales results as evidence that consumer spending is not driving economic growth. Most analysts expect only modest retail sales gains in 1998.
“The economy is growing, but a disproportionate part of that growth is from exports and stock market investments--not consumer spending,” said Ira Kalish, an economist with Price Waterhouse in Los Angeles.
Barnard--publisher of New Jersey-based Barnard’s Retail Trend Report--now forecasts a gain of 3.5% after previously predicting a rise of 3.5% to 4%. Another forecaster, LJR Redbook Research, said it lowered its December same-store sales forecast from 3.9% to 3.5%.
Meanwhile, the Wall Street investment firm Schroder & Co. on Tuesday reduced its sales forecasts for leading retailers. It revised its seasonal sales forecast for Penney from a 2% gain to flat sales. The firm also changed its estimates for Sears from a 1% rise to flat sales, and revised it’s projections for Dayton Hudson Corp.--operator of Target and Mervyn’s--from a 4% gain to a 3% increase. The estimates are based on same-store sales, or revenue from stores open at least 12 months.
The cuts in the estimates sent retail stocks tumbling.
“There is very little pent-up demand, and there is uncertainty about U.S. equity markets in the wake of instability in the Asian stock markets,” said Kalish, the Price Waterhouse economist. He said that merchants are likely to cut prices more than planned to move merchandise, thereby cutting into profits.
Retailers had hoped to avoid the pressure of late-season price cuts. Sears and Penney were among many chains who held pre-Thanksgiving sales and other promotions in a bid to encourage consumers to do their gift-buying earlier. In recent years, consumers have delayed their purchases because they expect better deals late in the holiday season.
“We tried but there hasn’t been much change in shopping patterns,” said Penney spokesman Duncan Muir.
