Despite price cuts, holiday retail sales plunge at least 2%

NEW YORK -- Despite some of the deepest price cutting ever seen before Christmas, retail sales still plunged 2% to 4% for the holiday season, MasterCard's annual SpendingPulse analysis showed.

If early December half-price sales aren't enough, what can retailers do early in the new year when consumers spending slows even in a good economy?

Dan Butler, the National Retail Federation's VP of merchandising and retail operations, says many retailers will reassess their pricing to charge closer to what consumers think products are really worth. He says shoppers got savvier and asked "is it really worth it?" even when prices are drastically discounted.

"Consumers had a reawakening," says Butler, a former Macy's store manager. "People are voting with their dollars now."

Retailers, says Butler, were even more worried about the first two quarters of 2009 than the holiday season. That makes pricing even more important because they need to sell at least some spring merchandise at full price to maintain profit margins.

As they did during the holidays, some retailers may continue adding less expensive non-sale items to their shelves, says Casey Chroust, SVP of retail operations for the Retail Leaders Industry Association. But they walk a fine line between preserving profit margins and turning off consumers.

"They don't want people to think 'hey, this is cheap merchandise,' " says Chroust. "Retailers are going to have to keep in mind the importance of maintaining brand integrity."

SpendingPulse data shows sales of women's clothing dropped nearly 23% while men's clothing sales slipped more than 14% in November and December compared with a year ago. Sales of electronics and appliances fell even more drastically, dropping almost 27%. SpendingPulse tracks total sales paid for by credit card and estimates those paid with checks and cash.

Online sales, which were expected to be far better than those in stores this season, were only a little better with a 2.3% decline, SpendingPulse says.