Holiday Sales Are Soft, but It Could Have Been Worse

By GREG JOHNSON LAURA LOH and LIZ F. KAY

Dec. 27, 2001 12 AM PT

TIMES STAFF WRITERS

The 2001 holiday shopping season posted the slowest sales growth in a decade, a victim of American consumers turned skittish by terrorist attacks and an economic recession, according to initial retailing industry reports Wednesday.

Although sales surged last weekend, a parade of deep discounts, coupons and offers of low or no-interest financing ultimately failed to spark the consumer excitement needed to jam store aisles and fill retailers’ coffers.

Preliminary season-ending numbers released Wednesday by individual retailers and two widely watched surveys together project a sales increase of about 2% for the period--in line with what many observers expected. Although final numbers to be released in the next two weeks might vary somewhat, there is little doubt that it will be the smallest gain since 1990, when sales growth was flat as shoppers also were rattled by a lengthy recession and a war involving Americans on the opposite side of the planet.

“People are being very cautious about how they spend their money,” Debbie Tucker of Granada Hills said while shopping with her kids at Burbank Media Center.

Though disappointing, the sales figures aren’t necessarily gloomy, economists and analysts said. The numbers could have been worse, given that the U.S. economy has been in recession since March. As such, consumer spending--which accounts for two-thirds of the nation’s economic activity--continues to remain a source of economic strength despite steady reports of layoffs and the dulling effect of terrorist activity.

The industry eked out “a plus year in a recession, which isn’t bad,” said William Ford, senior economic advisor for Telecheck, a Houston-based check clearance company that tracks retail sales. “It’s clear that retail [spending] is holding things together,” he said.

What’s more, consumer confidence rose steadily during the three months following Sept. 11, prompting some economists to predict a recovery during the middle of next year.

On Wednesday, the first day of post-Christmas shopping, early-morning bargain hunters across the nation snatched up deeply discounted holiday wrapping paper and Christmas ornaments. By early afternoon, shoppers were jockeying for position in parking lots as retailers again fired up promotions designed to clear shelves of everything from sweaters and shoes to exercise equipment and jewelry.

There were other sources of encouragement for at least some retailers and consumers.

Consumers continued to spend on goods perceived to be of value, which meant gains for Wal-Mart Stores Inc., the nation’s largest retailer, and others that focused on quality at low prices. Wal-Mart on Wednesday reported strong sales gains, helping to trigger an early stock market rally.

Americans traditionally hunker down during tough times, so the recession and the events of Sept. 11 created strong demand for such gifts for the home and family as cooking grills, pingpong tables and candles. James Webber, 39, of Stephenson Ranch said he bought only one gift for the whole season: a George Foreman grill for his best friend.

Consumer electronics, including new video game players from Microsoft Corp. and Nintendo Inc., were hot, along with digital cameras, producing gains for retailers such as Circuit City. But so were cooking utensils and housewares, which benefited home-oriented stores such as Bed Bath & Beyond.

Consumers also were able to wring cash from their homes by using historically low interest rates to refinance home loans. Such retailers as Home Depot and Lowe’s Cos. are expected to benefit as consumers remodel kitchens and replace aging appliances.

Online shopping didn’t match stratospheric gains made in recent years, but the Internet continued to grow in importance as more Americans ventured online to shop.

But some things were simply out of retailers’ hands. Mother Nature dealt apparel companies a significant blow with unseasonably warm weather in most of the nation that melted demand for sweaters, scarves and winter clothing. The late arrival of winter sparked a post-Christmas markdown spree ranging from 40% to 70% off selected apparel.

Telecheck on Wednesday reported that overall sales should rise by 2.2% from last year’s $201-billion sales season. Instinet Research’s Redbook Survey suggested that last week’s store traffic and sales “were up slightly from the previous weekend, but down from a year ago.” The International Shopping Center Council didn’t release its survey Wednesday as planned.

Clearly, many consumers pulled in their horns.

“All of your disposable cash doesn’t seem so disposable anymore,” said Terence Harris, 41, a Walnut resident who works for a North Hollywood casting company. “I think people are just not feeling that wealthy.”

Carol Cortez, 52, of Glendale usually funds holiday shopping sprees with tips earned by her husband, a hairstylist. But people don’t tip during recessions “because they’re hurting,” said Cortez, who shopped with her family at Glendale Galleria on Wednesday.

Tucker, 45, of Granada Hills, didn’t bother to open her purse while escorting her three teenagers. Instead, she watched from the sidelines as her children burned through cash received as gifts. “I’m trying to steer clear of extra expenses,” said Tucker, who works in film distribution for Warner Bros.

The 2001 holiday season will go down in the record books as the worst since 1990 for retailers, when sales were flat, according to the Commerce Department. The lackluster year’s sales increase isn’t expected to surpass 1996, when sales rose a modest 2.7%.

Retailers knew going into the season that it would be a tough one. When the nation’s shopping center owners asked 50 top retail analysts to pick one word to describe the upcoming season, two-thirds said “disappointing” or “poor.” The holiday season underscored what retailers already knew: Americans are increasingly interested in better values.

Retail industry analyst Kurt Barnard predicts that discounters will reap holiday sales increases averaging 2.5% to 5.5%, while sales at department stores and other higher-priced retailers will range from flat to down by 4%.

Wal-Mart, the king of the discounters, again outperformed competitors by adhering to its policy of promoting low everyday prices. The retailer said it remains on track for an “upper mid-single-digit” sales increase. Even as competitors slashed post-holiday prices to drive sales, Wal-Mart reported minimal dependence on price markdowns.

Not every discounter enjoyed a rosy season. Kmart Corp. slashed advertising early in the holiday season to cut costs, only to see store traffic and sales tumble. The chain expects to report a “low mid-single-digit” sales decrease.

Some familiar names also struggled. Sears, Roebuck & Co., which is cutting jobs and reorganizing stores, expects to report a low mid-single-digit sales decrease from last year.

Gap Inc., parent company of the Gap, Old Navy and Banana Republic chains, rolled new merchandise out during the waning days of the holiday season in a bid to reverse sales that had fallen by 25% compared with last year. The San Francisco-based company also warned that fourth-quarter profit would be lower than expected.

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Retail Sales

This season’s projected 2% gain over last year’s holiday sales will be the worst increase since 1990.

Year* Percent Change

2001 +2.0%

2000 +3.9%

1999 +7.6%

1998 +5.8%

1997 +4.1%

1996 +2.8%

1995 +3.6%

1994 +7.9%