Stores' Dismal December Means Prices Should Fall

Wal-Mart, the world's largest retailer, benefited last year as shoppers focused on necessities and switched to cheaper stores, but analysts say its disappointing December performance may signal that shoppers are pulling back even more. December sales were up 1.2 percent including fuel sales and rose 1.7 percent without. Wall Street was expecting 2.8 percent excluding fuel.

Pedestrians walk past Generations Menswear on 8th Ave. in New York Wednesday, Jan. 7, 2009. Retailers are reporting dismal sales for December, confirming fears that the holiday season was the weakest in four decades. (AP Photo/Craig Ruttle)

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Wal-Mart said electronics sales were solid, clothing and jewelry sales were weak, and health and wellness items were the strongest.

Ken Perkins, president of research company RetailMetrics, expects Wal-Mart to cut prices even further, fueling price wars. That's good news for shoppers.

Rival store Target, which had been stumbling because it depends more on nonessential items like trendy clothes, said its same-store sales dropped less than expected. Target cut prices to gain market share and clear out inventories, but it says those moves will hurt its fourth-quarter profit.

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Grocery store chain Supervalu Inc. has already said shoppers will probably pay less and be offered more promotions this year. The chain says customers are switching to cheaper food, like ground beef rather than T-bone steaks.

Some chains see a silver lining: Some of their competitors will probably have to close their doors.

Jewelry chain Zale Corp. reported a 22 percent drop in same-store sales but said business improved during the week leading up to Christmas and has also been better since the holidays.

"We believe that we are in a strong position to benefit from the winnowing of competitors," said Zale Chief Executive Neal Goldberg.

But for now, the picture is grim. Sears Holdings said its December same-store sales dropped about 7 percent, including a drop of nearly 13 percent at domestic Sears stores. Kmart sales fell only about 1 percent, suggesting that its low prices are drawing shoppers away from more expensive stores.

And Macy's Inc. cut its full-year earnings outlook because of heavy markdowns and said it plans to close 11 stores. Its same-store sales were down 4 percent in December, and more than 7 percent for November and December combined.