Fewer Americans hit the malls the last week before Christmas even as retailers from Macy's to Michael Kors Holdings poured on the discounts.
U.S. store visits plummeted 21 percent and retail sales dropped 3.1 percent in the week through Dec. 22, signaling a lackluster finish for stores' most important selling season, Chicago-based researcher ShopperTrak said Monday.
Falling store traffic in recent weeks and uneven demand, especially for apparel, spurred chains to risk earnings by piling on the discounts to generate sales. Retailers including Neiman Marcus Group LLC were offering as much as 75 percent off, and some, including Macy's and Kohl's Corp., were keeping stores open around the clock starting Friday. At the same time, Americans are increasingly shopping online.
"The numbers are a bit scaring," said Bill Martin, ShopperTrak's co-founder. "This is modest growth."
Holiday purchases increased 2 percent from Nov. 1 to Dec. 22, ShopperTrak said. Sales will rise 2.4 percent for the whole season, the smallest gain since 2009, Martin reiterated.
ShopperTrak compiles sales and traffic data from devices in stores and receipt information, primarily from mall-based sellers of general merchandise, apparel, furniture and electronics. Holiday sales grew 3 percent last year, 3.4 percent in 2011 and 4 percent in 2010, according to the firm's measure.
Sales at retailers' stores open at least a year climbed 2.7 percent the week ending Dec. 21 from the same period last year, the International Council of Shopping Centers said in a statement Tuesday. The ICSC, which samples data from a group of retail chain stores, projects retailers' comparable-store sales in December will increase 3 percent to 4 percent.
The National Retail Federation reiterated on Dec. 12 its prediction for total sales to rise 3.9 percent in November and December, more than the 3.5 percent last year.
While the U.S. economy grew at a surprising 4.1 percent annualized rate in the third quarter, the gain was driven by increased spending on services such as health care and recreation as well as companies' software investments.
As a result, the expansion largely bypassed retailers such as Wal-Mart Stores Inc., which trimmed its profit forecast last month as customers failed to increase spending. A week later, Target Corp. posted third-quarter profit that fell 46 percent.
Even Michael Kors's hot namesake leather goods brand couldn't avoid discounts. A larger portion of the company's inventory was marked down than last year, indicating a slower- than-expected holiday season, Gabriella Santaniello, an analyst at Wedbush Securities in Los Angeles, wrote.
Gap Inc.'s Old Navy chain started offering as much as 75 percent off throughout the store on Dec. 22. "The After Holiday Sale Starts Today," it said in advertising.
Income is the issue
The promotions were the most prevalent since 2008, Craig Johnson, president of Customer Growth Partners in New Canaan, Connecticut, said in an email. Without more growth in Americans' disposable income, retailers can't thrive during the holiday season or the rest of the year, he said. "Super Saturday," while the biggest sales day ever with $17 billion in sales, won't be enough to help retailers, said Johnson, who uses a wider measure of retail sales than ShopperTrak.
"This has been a very difficult season," he said Monday. "One terrific day can't turn around an otherwise tepid season."
The "heated" promotions may pressure profitability at Abercrombie, Aeropostale Inc., Francesca's Holdings Corp., L Brands Inc. and Urban Outfitters Inc., Richard Jaffe, an apparel analyst with Stifel Financial Corp. in New York, wrote in a note to clients last week.
Sales in November and December account for 20 to 40 percent of U.S. retailers' annual revenue and 20 percent of profit, according to the NRF, a Washington-based trade group. Consumer spending is about 70 percent of the U.S. economy.
Not all retail sectors are faring equally. According to analysts' estimates averaged by Swampscott, Mass.-based researcher Retail Metrics: Home-improvement and furnishing chains will generate 7 percent growth in fourth-quarter same-store sales, auto retailers will see 6 percent growth and discounters 1 percent. Sales at department-store chains will fall 1 percent and they will sink 7 percent at teen-apparel chains. Luxury chains will post a 5 percent gain, less than last year's 5.4 percent increase.
The Standard & Poor's 500 Retailing Index gained 43 percent this year through Monday, compared with a 28 percent gain for the broader S&P 500.