Stores' Dismal December Means Prices Should Fall

Shoppers on New York's Madison Ave. pass a DKNY clothing store promoting a sale of up to 90 per...

Shoppers on New York's Madison Ave. pass a DKNY clothing store promoting a sale of up to 90 per cent off, Monday, Jan. 5, 2009. Fears about the effects of rampant discounting on shoppers' psyche and its impact on stores' profit are running high as many retailers are expected to announce same-store sales declines of more than 10 percent for December on Thursday, marking the third consecutive monthly decrease, according to the International Council of Shopping Centers. (AP Photo/Mark Lennihan)

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Dismal sales figures for the holiday shopping season are probably a sign of worse to come for merchants in 2009 — not only more sharp discounts and cheaper groceries but probably fewer stores.

Holiday spending was so anemic that even Wal-Mart didn't escape unscathed: It posted a smaller sales gain than Wall Street expected and cut its earnings outlook for the fourth quarter. Macy's, Gap and a slew of others reduced their forecasts as well, mainly because of the huge discounts stores have used to draw in customers.

The nationwide picture was bleak: Same-store sales were down 1.7 percent for December, with many chains reporting declines of 10 percent and more, according to an index released Thursday by the International Council of Shopping Centers and Goldman Sachs.

For November and December combined, the drop was 2.2 percent — the weakest holiday shopping season since the index was started in 1969. For all of 2008, sales rose just 1 percent, the weakest in at least 38 years.

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"The blanket that has covered the North American consumer that has kept them from spending is heavier than expected," said Dean Hillier, partner in the retail practice of consulting firm A.T. Kearney.

The malaise was widespread — kitchen gadgets to jewelry to clothes. Several stores such as Toys R Us and Macy's said business improved in the last weeks of December as shoppers pounced on the best deals, but people still cut back overall.

Among the many stores that reported steep sales declines were Sears Holdings Corp., which operates Kmart and Sears, as well as Abercrombie & Fitch, Gap Inc. and Saks.

Sales on new items for spring have already begun, fueling more concerns about the retail industry's health. A rash of store closings is expected as retailers navigate the deepening recession.

Disappointing sales of holiday gift cards mean stores probably won't see a big lift in business in January. Michael P. Niemira, chief economist at the ICSC, forecasts a 1 percent decline in same-store sales for the month.