Retailers Hope for Late-Season Boost

Dec. 23, 2005 — -- With only hours left before the official unwrapping of Christmas presents begins, U.S. retailers continue to hope that a last-minute surge of shoppers will boost overall holiday sales.

Earlier this week, the National Retail Federation reported that more than 30 million people had not even started their Christmas shopping.

"With Christmas coming on a Sunday, most people feel they can procrastinate a little bit longer, because they have until Saturday to finish up their holiday shopping," said Bear Stearns retail analyst Dana Telsey.

Retailers hope these people will push sales up after what has so far been a less-than-blockbuster holiday shopping season.

"It's still a bit of nail biter," said retail analyst Lori Wachs at Delaware Investments. "Really, it is down to the two days before Christmas -- which are 10 percent of the season -- and the jury is out until tomorrow night."

At the start of the holiday season, the National Retail Federation expected total holiday spending to increase 6 percent to reach nearly $440 billion in sales. But now other analysts expect more modest sales.

"It will still set an all-time U.S. record," said Burt Flickinger, of Strategic Resource Group, a New York-based industry consulting group. "But that said, the retailers expecting a 6 [percent] to 7 percent increase in sales will be happy to get half of that."

The last thing that any retailer needed was the three-day transit strike that crippled New York just before the holiday. While the strike affected only the New York City region, it hurt the biggest retail market in the country, according to Flickinger.

Residents and tourists alike found it difficult to shop, and hourly workers who couldn't get to work now realize they have less money to spend on Christmas gifts. As a result, nationwide retail sales figures will drop.

"New York will take the entire country down about 1 [percent] to 1½ percent," said Flickinger.

Some stores such as Tiffany and Co. and Saks Fifth Avenue will feel the effect more than others. More than 10 percent of Saks' holiday sales come from its New York flagship store, and according to Wachs, the upscale department store is already offering its post-Christmas sale prices: 40 percent off prices already marked down 40 percent.

Those steep price reductions sum up the entire season this year.

Retailers, led by Wal-Mart, have discounted prices early and often to bring in holiday shoppers. In Wal-Mart's case, it appears to have worked.

The world's largest retailer reported that in the first 90 minutes of "Black Friday," the day after Thanksgiving and the traditional start of the holiday-shopping season, 10 million people passed through its doors.

But while Wal-Mart's sales rose 9.4 percent in November compared with last year, many other retailers have struggled to ring up sales. Overall, retail sales in November rang in weaker than expected.

"The holiday season was a little bit choppy," Telsey said. "We started off strong, it dipped in the middle, and this last week certainly was the biggest week."

If pre-Christmas sales in December turn out less than stellar, then the hope is for strong post-Christmas sales.

"The good news is that a lot of shoppers are postponing purchases and going out the last week of the year," said Flickinger. "So there will be a real sales surge next week, which will help retailers."

But Wall Street is worried that deep discounts of up to 70 percent in some places may lead to big sales but small profits at the nation's retailers.

One retail avenue that continues to grow with every holiday is online shopping. In this case, the New York transit strike provided a further boost to Internet sales.

ComScore Networks reported that as of Dec. 21, online sales totaled nearly $17.5 billion, a 24 percent increase from last year. For November and December, the group was forecasting $19 billion in sales, also up 24 percent.

While shoppers may think that shopping for the holidays is over once they unwrap the packages, more and more, the season stretches into January.

Much of that stretch is thanks to gift cards. In 2004, gift cards represented about 14 percent of all holiday expenditures, or $30 billion. This year, gift cards are on track to do even better.

"There is more money in gift cards this year and more holiday expenditures are going that way," according to Michael Niemira, the chief economist for the International Council of Shopping Centers.

During the week after Christmas, shoppers redeem approximately 10 percent of the gift cards purchased for the holiday, and they use 40 percent in the month of January. When shoppers use their cards, they often go on to shop for more than just the value of the card.

"January is a key month to watch," said Niemira.

So if Christmas comes earlier and earlier each year, perhaps it's only natural that the shopping season extends past Dec. 25. Does that mean Santa and Christmas carols will be around until February?