Surge Spurs 5% Rise in December Sales

Thanks to a surge in last-minute shopping, retail sales rose 5% in December--an increase that was higher than expected but still not enough to salvage a disappointing holiday season.

Analysts said Thursday’s report on December’s sales gains--the largest in five years--were driven by heavy price-cutting, and that profits for retailers would suffer as a result. They said they will be lowering earnings estimates for some of the chains that offered the deepest discounts.

Analysts had been expecting overall sales gains as low as 3%, until department stores and specialty-apparel chains began to cut prices steeply late in the month. They blamed the lackluster season on concerns about the economy in the wake of large corporate layoffs and on consumer buying habits.

“This season did not get going until after Christmas, which is when retailers posted panic sales signs,” said Kurt Barnard, a New Jersey-based retail economist. “People no longer feel the need to purchase before Christmas at full price. They’re waiting until retailers liquidate inventory at clearances.”

Off-price chains and home-furnishings stores enjoyed the highest gains, while department stores recorded modest success. Apparel chains had little to celebrate.

Sales in Southern California grew by 5.5%, also reflecting aggressive price-cutting.

Among the retailers reporting respectable increases were Dayton Hudson Corp.--operator of the Target and Mervyn’s chains--and Sears, Roebuck & Co.

Dayton Hudson had a slow start but rang up a healthy monthly increase of 6.4%. Much of that improvement was generated by Target, which had a 6.4% increase, and by Mervyn’s, which rebounded from a difficult 1996 holiday season with a strong 6.9% gain.

Dayton Hudson spokeswoman Susan Eich said sales at the Target and Mervyn’s stores in California were 2% higher than non-California stores, reflecting the strength of the state’s economy.

Sales at Sears were lower than expected until late December. The retailer posted a gain of 4.5% with the help of late-season promotions.

The monthly reports from Sears and other retailers were issued Thursday and based on same-store sales--revenue from stores open at least a year. Same-store sales are the best retail indicator because it excludes new or recently closed stores.

May Department Stores, operator of the Robinsons-May chain, said sales rose 4.8%.

Helped by a demand for jewelry and upscale gifts, Tiffany & Co. recorded a 15% sales increase for December. Discount giant Wal-Mart--at the other end of the price chain--recorded a 7.2% increase in December, largely on strength of toy and apparel sales.

Although apparel sales were relatively weak during the season, some retailers racked up big gains. Gap recorded a 10% increase, thanks in large part to sales at its lower-price Old Navy chain. Heavy price-cutting accounted for much of the Limited’s 7% increase, analysts said.

Discounting didn’t help J.C. Penney, which had a 2.3% decline. Federated Department Stores--operator of Macy’s and Bloomingdale’s--failed to create a turnaround with price cuts. Federated managed a meager 1% increase compared with a year ago.

Weak apparel sales also hurt Kmart, which had a modest 2.9% increase. Kmart Chairman Floyd Hall said the retail industry will not generate the 8% to 10% holiday season increases common in the 1980s partly because acquisitive baby boomers are aging and are no longer aggressively acquiring goods.

“More of these people will be traveling and eating out more and spending less on goods,” he said.

The declining interest in moderate to pricey goods was especially evident at the holidays. Ann Taylor ended a weak year with a 10% decline in December sales.

Conversely, off-price chains such as T.J. Maxx and Marshall’s fared well. The operator of those two chains--TJX Cos.--had a 7% jump in sales.

Home furnishings were strong. Williams Sonoma had a 4.1% gain, and sales jumped 14% at stores operated by Pier 1 Imports. Other chains--Sears, Target and Mervyn’s among them--also reported strong sales of items for the home.

“Home furnishings have become popular because more consumers are looking for merchandise with longer-lasting value,” said New York-based analyst Walter Loeb of Loeb Associates. “The value of fashion is fleeting.”

Loeb and other analysts said the modest holiday season results are a sign that retailers will have to continue to cut prices to move merchandise early in 1998.