A Mixed Holiday Shopping Season

Jan. 4, 2007 — -- The holiday shopping season started with a boom the day after Thanksgiving, went into a lull, and finished with a last minute bang. But in the end, it was not enough.

Thursday the nation's retailers reported sales figures for December, and many stores had lower than expected results.

"It's been good, not great, particularly because consumers at the low-end are really suffering from higher interest rates and higher prices on everything from apartment rentals to gasoline," said Burt Flickinger at Strategic Resource Group, a New York industry consulting group.

A slowing economy due largely to a slowing housing market led many Americans to feel the pinch from gasoline prices that were higher compared with a year earlier. As a result, many families held back this holiday.

But there were bright spots this season. "Luxury [stores] really carried the day," said Flickinger.

"The high-end consumer isn't truly concerned about housing prices and interest rates or inflation," said Robert Drbul, a retail analyst at Lehman Brothers. "They feel good with the state of the economy."

Wal-Mart vs. Target

After stumbling earlier in the season, Wal-Mart turned to aggressive price discounts and heavy marketing, which resulted in a better than expected December.

The world's largest retailer reported that same-store sales for the month of December increased by 1.6 percent. That result was higher than the company's earlier predictions that the increase would be zero to 1 percent.

Same-store sales refers to sales at stores that have been opened for more than a year, and are considered a standard measure of retail sales.

While that was good news for Wal-Mart, its holiday growth was a bit anemic when compared with archrival Target's. The high-end, low-cost discounter had December same-store sales of 4.1 percent.

"Target does a terrific job of straddling the middle by matching Wal-Mart's prices and at the same time having cheap-chic products, shoes and accessories as good as midtier department stores," said Flickinger.

So while that was good news for the Minneapolis-based retailer that has captured the heart (and pocketbooks) of shoppers across the income spectrum, it was still below what forecasters had estimated.

Department Stores Mixed Bag

Toward the end of 2006, sales figures indicated that shoppers had returned to the previously abandoned department stores. In December the trend continued, but with less force than in previous months.

Federated Department Stores, owner of Macy's and Bloomingdale's, saw same-store sales increase by 4.4 percent -- a healthy number but below Wall Street's estimate.

JC Penney, which has seen a recent turnaround, saw an increase of 2.6 percent during the month, above the 2.4 percent estimated increase.

And Wisconsin-based Kohl's Corp. continued its recent revival with a 3 percent same-store sales increase.

"Kohl's does a terrific job," said Flickinger. He explained that the company uses its purchasing power nationwide to offer high-end designers like Vera Wang and at the same time offer its customers reduced prices.

It's the Economy, Shoppers

As in previous years, luxury retailers like Tiffany and Neiman Marcus did well this holiday.

Wendy Liebmann with WSL Strategic Retail, a retail consulting firm, wasn't surprised.

"There is a bifurcation of the economy, and there are a lot of people with a lot of money, so they were driving the Saks, Nordstrom, Neiman business," she said. "There was no caution there. Caution was thrown to wind. There was not enough to spend money on."

Neiman said same-store sales increased 7.1 percent. Saks Fifth Avenue's increased 11.1 percent. Nordstrom pulled in a 9 percent increase in December.

Specialty Stores Stumble

One shopping casualty this holiday season was specialty retail stores.

Powerhouse Abercrombie & Fitch had turned in 1 percent in same-store sales. Anne Taylor, -5.4 percent. Long-suffering Gap turned in -8 percent growth.

Liebmann explained this poor performance again on the economy. "If you've got money, you go high-end. If you are concerned about money, you go discount. That was the big message, and I don't think it's going away soon."

Furthermore, while apparel continued to be a top gift item, no one item or trend really grabbed shoppers' attention, which in turn hurt the specialty stores.

"The great must-have in fashion didn't arrive down the chimney this season," explained Liebmann.

Lehman's Drbul explained further: "There really wasn't a major apparel driver this holiday season. It was all about the electronics category."

The increased popularity and lower prices of consumer electronics -- iPods and flat-panel televisions -- drove shoppers away from apparel stores and into electronics stores like Circuit City and Best Buy. Even Wal-Mart benefited from consumer electronics.

Shopping Changes

One of the clearest messages this holiday season is how shopping has changed and perhaps with it, how retailers and analysts will have to measure holiday sales in the future.

Forecasters predicted that shoppers would spend heavily on gift cards this holiday season. The National Retail Federation estimated sales would reach more than $24 billion and represent 8 to 9 percent of sales in November and December.

With nearly two-thirds of the cards redeemed from Dec. 26 through the end of January, the holiday shopping season stretches far beyond Christmas for many retailers.

Furthermore, e-commerce sites saw record sales this year. From Nov. 1 to Dec. 31, comScore Networks reported that consumers spent $24.6 billion online, up 26 percent from a year ago.

Many shoppers who would have braved the crowds to find that perfect gift turned to their computers instead. JC Penney, for example, reported that online sales increased by 15.2 percent.

"What's a store these days?" asked Liebmann. "Consumers have so many places to buy merchandise and it doesn't have to be in the store. It could be the store, the catalog, online. Where do you shop?"

Wherever customers do go to shop, retailers will surely try to be there to ring up the sales.