Posted on: Friday, December 5, 2003
Retailers worry holiday sales may not follow economy's lead
By Anne D'Innocenzio
Retailers and analysts had been optimistic that the improving economy would give holiday sales a big lift. But after the release of November's largely disappointing sales figures, retailers are under more pressure to get shoppers to spend more freely in the weeks before Christmas.
Initial reports indicated retailers generally had an upbeat start to the holiday season. Those results came from mall operators and analysts who examined preliminary sales data.
But as retailers reported their first solid results for the season, Wal-Mart Stores Inc. posted only a modest gain during November. Target Corp. and Costco Wholesale Corp. recorded big increases that pleased Wall Street, but most department stores struggled.
Upscale retailers were among the strongest performers, with Saks Inc., Neiman Marcus Group and Nordstrom Inc. reporting sales that beat expectations. Gap Inc. continued its upward sales momentum.
"It is a mixed performance even within categories that underscores where we are in November, and probably through December," said Michael P. Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd.
He added, "What we actually need to see is that the middle- to low-end consumer start to step up purchases."
The Bank of Tokyo-Mitsubishi's same-store sales tally of 74 retailers was up 3.6 percent, slightly below Niemira's forecast of a 4 percent gain. Same-store sales or sales at stores open at least a year are a key indicator of a retailer's health.
That led Niemira to lower his same-store sales forecast for the holiday season to a 4 percent gain from 4.5 percent. That would still be the strongest since 1999, when the tally rose 5.4 percent.
Clearly, merchants that heavily discounted last weekend were the winners; those that tried to wean consumers away from big markdowns found the strategy didn't work.
"The lesson learned is that it takes more than you think for the retailer to break out of the spiral," said John Morris, an analyst at Harris Nesbitt Gerard.
Morris warned that if this coming weekend's sales are disappointing, merchants will be forced to discount more.
Meanwhile, the Labor Department reported yesterday that more workers filed new claims for unemployment benefits last week. However, even with the gain, claims remained at a level indicating that the worst of the layoffs seen this year are over.
The department said that for the work week ending Nov. 29, applications for benefits rose by a seasonally adjusted 11,000 to 365,000.
Economic data has been generally positive recently, including the government's announcement Wednesday that productivity soared at an annual rate of 9.4 percent in the third quarter. But despite such upbeat data, many low- to middle-income consumers are still struggling.
Wal-Mart reported a 3.9 percent gain in same-store sales, matching Wall Street projections that were lowered after the discounter reported a modest start to the holiday season over the weekend. According to Thomson First Call, the original analyst consensus was for a 4.1 percent gain.
Target reported same-store sales were up 6.2 percent, reflecting stronger-than-expected business at its discount stores. Thomson First Call anticipated a gain of 5.1 percent. At Costco, same-store sales were up 14 percent.
Results at Sears, Roebuck and Co., Kohl's Corp. and many other mid-priced stores were disappointing.
Sears reported same-store sales fell 3.6 percent; analysts had forecast a 1 percent gain.
"Overall, November results were below expectations and we are disappointed that the results weren't stronger," Sears chairman and CEO Alan J. Lacy said in a statement.
Kohl's same-store sales declined 4.4 percent, more than the 3.1 percent decline analysts expected.
Federated Department Stores Inc. said same-store sales slipped 0.1 percent; analysts surveyed by Thomson First Call expected a 0.2 percent gain.
Upscale retailers reported solid results.
Neiman Marcus Group had a 5.8 percent same-store sales gain. Analysts expected a 4.3 percent rise.
Nordstrom's sales rose 7.4 percent, well exceeding the 3.9 percent Wall Street expected.
Saks, which operates luxury retailer Saks Fifth Avenue and such department stores as Carson Pirie Scott and Proffitt's, said same-store sales were up 6.7 percent, well past the 2.8 percent gain Wall Street had anticipated.
Meanwhile, Gap Inc. had a 6 percent gain in same-store sales, better than the 4 percent forecast.