Retailers get their holiday wish with modest rise in December sales
A Christmas that was better than expected helped the nation’s retailers turn the corner, boding well for a budding economic recovery that will depend heavily on a revival in consumer spending.
The retail industry posted a 2.9% sales increase in December compared with the same period a year earlier, easily beating expectations for a 2% rise, according to Thomson Reuters’ tally of 30 major chain stores released Thursday. It was the biggest December gain since 2006 and the best monthly showing since April 2008.
“The consumer came out, the consumer responded -- it’s what I’m calling an adequate holiday,” said Marshal Cohen, chief industry analyst at market research firm NPD Group. “You can basically say that we’re off the critical list.”
The sales increases provided some much-needed relief for retailers, who suffered the worst holiday season in decades a year earlier and saw November sales that were tepid at best.
Americans are still constrained by economic factors that prevented Christmas spending from reaching pre-recession levels. And the gains were helped by a miserable December 2008 that was easy to beat.
Still, retail experts said the momentum was enough to stabilize an industry in the early stages of a turnaround. After a tough retail downturn marked by major bankruptcies, store closures, reduced staffing levels and deep discounting, the industry is finally on track to have a healthy year, they said.
With consumer spending accounting for about 70% of U.S. economic activity, a revitalized retail sector could help the economy as a whole.
“2010 will build upon the recovery that began at the tail end of ’09 and will be driven in part from some of the things that have been a drag on the economy and the consumer becoming less significant,” said Michael Niemira, chief economist at the International Council of Shopping Centers, who estimated that retail sales this year would increase as much as 3.5% over 2009.
Fueled by pent-up demand and attractive discounts, consumers slowly began loosening the purse strings for the holidays. Although they didn’t shop with abandon, many spent more freely than they had in months, pushing sales during the November-December period up 1.8% year-over-year after a record 5.6% drop in 2008, Niemira said.
Job stability began to increase toward the end of the year for Amy Snively, 40, and her husband, enabling her to spend more on presents and other holiday-related expenses than she’d planned.
“We started out last year feeling nervous and we were really conservative with our spending -- until the end of summer, we were basically holding our breath,” the voice-over actress from Northridge said Thursday. “But things are looking better now.”
Excluding drugstores, all major retail sectors beat expectations last month, Thomson Reuters said. Discounters reported a 5.3% increase, apparel sellers saw sales rise 4.7%, and even the beleaguered department store sector posted a 0.7% gain.
All told, three-fourths of retailers did better than expected, with healthy performances coming from both low-priced and luxury sellers. By keeping inventory levels low, retailers managed to avoid the steep discounting seen a year earlier, which could help profit margins; many chains raised their fourth-quarter outlooks Thursday.
Sales received a boost from last-minute holiday shoppers and from people who were buying items for themselves, many of them lured by improved merchandise offerings that better matched consumers’ frugal mind-sets. Electronics, footwear and toys were all strong categories this holiday season; online sellers also saw robust business.
The month’s top performers included off-price sellers TJX Cos., parent of the T.J. Maxx and Marshalls chains, which posted a 14% increase, and Ross Stores Inc., up 12%.
But even luxury sellers Saks Inc. and Neiman Marcus Inc. had a strong month, reporting gains of 9.9% and 4.5%, respectively.
At Gap Inc., parent to the Gap, Banana Republic and Old Navy chains, sales rose 2%. Although analysts surveyed by Thomson Reuters had expected higher results, Chief Financial Officer Sabrina Simmons said the San Francisco company was “pleased that our planned promotions and holiday assortments allowed us to compete effectively.”
The laggard was the long-struggling teen and children’s apparel sector, which saw sales decline 2.5% over December 2008, though that was better than the 4.3% drop analysts had expected.
Teen retailer Abercrombie & Fitch Co., which has been plagued by huge sales declines for months, reported that sales plummeted 19%, worse than the predicted 12.5% decline. Hot Topic Inc. of City of Industry saw sales fall 10.9%, and Wet Seal Inc. of Foothill Ranch posted a 4.6% drop.
Results are based on sales at stores open at least a year, known as same-store sales and considered an important measure of a retailer’s health. Discount giant Wal-Mart Stores Inc., the world’s largest retailer, no longer reports sales on a monthly basis.
Despite the gains, retail experts cautioned that the industry was poised for a slow recovery that could see periods of sluggishness now that the holidays were over.
With little incentive for consumers to shop after Christmas, retailers often experience a lull during the late winter months.
“Even if we’re seeing some year-over-year growth, that doesn’t mean we’re reaching new sales heights -- we’re still well below the peaks,” said Michael McNamara, vice president for research and analysis at SpendingPulse, an information service of MasterCard Advisors.
And not all merchants saw sales increase during the holidays.
“It was slower than last year, definitely,” said Jill Miller, store manager at Mudra, a boutique at the Third Street Promenade in Santa Monica. “No one’s splurging like they used to.”
After getting laid off from her job at an architectural and engineering consulting firm in October, Susie Ilous, 37, said she’d sharply curbed her spending and didn’t buy any presents for the holidays.
Despite being surrounded by 70%-off sale signs and buy-one-get-one-free offers at the Third Street Promenade this week, the Sherman Oaks resident said she wouldn’t go into any stores and planned to remain thrifty well into the new year.
“I just don’t see the economy turning around that quickly, even though everyone is saying it is,” she said.
