A good piece out this weekend from the New York Times preaching the same story we’ve been discussing now for weeks. Retail sales were slightly up but only because retailers are slashing prices. Retailers are relying on promotions and price cuts to maintain sales in the crucial holiday quarter. It really doesn’t add up to a pretty picture for most retailers.
From the NYT:
Sales at stores open at least a year at major retail chains rose 3.4 percent compared with December 2010, according to data compiled by Thomson Reuters, just above the 3.3 percent that analysts had expected.
But the cost of propping up sales was high. Profits “were a mess” for many retailers, said Paul Lejuez, an analyst at Nomura Equity Research. Consumers were buying less than retailers had expected, and stores had to mark down inventory to get it out the door by Christmas.
The results show the American consumer has not bounced back from the recession, analysts said. Consumer spending accounts for the largest portion of the economy. But the shaky holiday results add to an already weak snapshot of the consumer situation, including flat incomes and a slow job market.
“Retailers came in with pretty conservative assumptions, and they were hoping to blow them out of the water — they really didn’t,” said David L. Bassuk, managing director and head of the retail practice at AlixPartners, a consulting firm. Retailers were resorting to promotions like “ ‘50 percent off our whole store,’ ‘60 percent off our whole store,’ which is when you can see times are tough,” he said.
With too much supply and limited demand from consumers, “there’s not enough room for all the retailers of old,” he said. The new year would probably bring “closing of stores and, I think, closing of retailers,” he said, adding, “It’s a more dire situation than many had anticipated.”
Chains including Target, Kohl’s and J. C. Penney lowered their fourth-quarter profit expectations on Thursday, saying they had to discount items to entice shoppers in December.
Craig Johnson, president of Customer Growth Partners, said he believed those companies were affected by the good performance at Macy’s. Same-store sales at the company were up 6.2 percent, above analysts’ expectations, and the company said Thursday that both same-store sales and profit for the quarter should be higher than expected. Macy’s now forecasts fourth-quarter profit to be $1.55 to $1.60 a share, up from $1.52 to $1.57 a share.
Walmart, the nation’s biggest retailer, does not report monthly same-store sales. During the recession, it benefited from a trading-down effect — people who shopped at Target would switch to Walmart — but analysts said they did not believe that explained the problems at Target, Kohl’s and J. C. Penney now. “Keep in mind, sales were O.K.,” Mr. Lejuez said; the problem was profits.