WSJ: Retail Rush Falls Short, Now Come More Sales 

Spurred by heavy discounting, U.S. shoppers spent furiously in the days just before Christmas. But holiday retail sales appeared to still fall short of industry expectations, setting the stage for bigger markdowns in the increasingly important post-Christmas period.

The 11th-hour rush helped strengthen a weak holiday season. From the day after Thanksgiving to midnight Monday, total retail sales, excluding automobiles, rose 3.6% over the previous year, according to MasterCard SpendingPulse, a unit of MasterCard Advisors. But factoring out spending on gasoline — which soared thanks to a 27% average price increase since this time last year — retail sales increased a lackluster 2.4%. Industry forecasts had predicted gains of 3.5% to as high as 4.5%.

"The surge at the beginning of the season and the surge at the end of the season definitely resulted in the modest growth that we saw," Michael McNamara, vice president of research and analysis for MasterCard Advisors, said in an interview yesterday. "If we didn't have those surges, it would have been a negative story."

The SpendingPulse data includes sales in stores and online. It also covers spending at restaurants and on gift cards, though retailers don't book revenue from card sales until they are redeemed. The data are based on sales activity in the MasterCard payments network, and also estimates for payments made by cash and checks. It doesn't represent MasterCard Inc.'s corporate results.

Procrastinating shoppers in the final weekend before Christmas fueled an 18.7% sales gain over the same weekend last year, according to ShopperTrak RCT Corp., which tracks sales in retail outlets nationwide. "We saw a definite trend for the consumer to go after the deal," said David Jaffe, president and chief executive of the Dress Barn Inc. womenswear chain.

Now, retailers are rolling out more sales and freshening up stores with new merchandise to capitalize on an expected post-Christmas shopping rush. Mr. Jaffe and others predict the promotions after Christmas will be deeper and more comprehensive as retailers seek to rid themselves of fall merchandise, clear out poor-selling inventory and capitalize on gift-card redemptions.

Shoppers reined in their spending for long stretches of the holiday season amid concerns that the continuing credit crisis and the subprime-mortgage meltdown are pulling the economy into a recession. "It's just that insecurity. We've been a little conservative," said Vince VanZago as he and his wife, Kate, left a Costco Wholesale Corp. store in the Denver suburb of Arvada, Colo., Sunday. The couple estimates this year's holiday spending was half their usual $1,200.

Among the season's strong performers was the e-commerce sector, which posted a 22.4% gain in online sales over last year, according to SpendingPulse. Luxury retailers, including high-end apparel, posted a 7.1% gain, excluding weak jewelry sales. Including jewelry, the luxury category declined 1.9%. Costco, which caters to shoppers making bulk purchases, reported strong sales of seasonal gifts and food that more than offset weaker-than-expected jewelry sales.

Cooler weather late in the season inspired shoppers to snatch up outerwear and fall fashions, SpendingPulse said, boosting the specialty-apparel industry to a final 1.4% gain after an anemic 0.5% rise halfway through the shopping season. Menswear sales increased 2.3%, while footwear sales rose 6%.

Shoppers visit the Manhattan Macy's store on Christmas Eve.

Perhaps the season's biggest loser was women's apparel, which declined 2.4% despite a late rally. Luxury retailer Neiman Marcus Inc., which posted higher sales and net income in its latest quarter ended Oct. 27, noted earlier this month that certain fall looks from European fashion lines didn't sell as well as expected. The clothing, as well as unsold fall handbags and shoes, now have been discounted.

Nancy Weiss and her daughter Nathalia Rodela were among those out scouting for bargains Monday. "The sales have been really good this year," said Ms. Weiss, a 52-year-old flight attendant, as she scanned racks of designer clothes marked down by 30% on top of an earlier 20% reduction at Neiman Marcus in NorthPark Center, a high-end mall in Dallas.

Electronics, which offered the must-have gifts of Nintendo Co.'s Wii game console, videogames and Apple Inc.'s iPods and iPhones, registered red-hot sales, though the sector registered a gain of only 2.7% over last year. That figure appears low because MasterCard includes appliance sales in the category, which tempers the sales gains of more coveted items. As personal electronics have become smaller, cheaper and easier to use, they are displacing toys and apparel sales, said Craig Johnson, an analyst with retail-research firm Customer Growth Partners LLC in New Canaan, Conn.

Retail experts had predicted better inventory planning would help stores avoid widespread markdowns this year. But Wal-Mart Stores Inc. unveiled thousands of long-term price cuts three weeks before Thanksgiving, prompting toy retailers and others to follow. The discounts "started earlier, they got a little deeper, meaning bigger percentages off, and they were certainly more frequent," said Marshal Cohen, chief industry analyst at market-research firm NPD Group.

Retailers, expecting shoppers to return in force this week, are preparing a range of strategies. Last year, shoppers spent $58 billion at U.S. stores and restaurants in the seven days following Christmas, marking a 4.3% increase from the same period a year earlier, according to SpendingPulse. Electronics and teen apparel are typically strong during this week.

Some retailers hope to entice after-Christmas shoppers with new, full-price merchandise. Williams-Sonoma Inc. plans to unveil a new line of natural cleaning products called "Pure and Green," including scents such as "olive oil and coriander." Limited Brands Inc.'s Victoria's Secret will debut a limited-edition fragrance called "More Pink Please" at $20 and $47, depending on the concentration.

But the main draw will be a new wave of sales promotions that already have begun. Coldwater Creek Inc., which caters to mature professional women, is offering a 50% discount on everything on its Web site through midnight Friday.

Overstock.com Inc. is among the online retailers offering free shipping on purchases through the end of the month. Department-store giant Macy's Inc. emailed customers about discounts of 20% to 65% on its Web site. Shoppers at Victoria's Secret who buy one bra can get a second bra half off today and tomorrow.

As gift cards have grown more popular, January has siphoned sales from December and November in recent years. Last year, January sales made up 25% of the three-month period's total, up from 23.6% in the 2000-01 season, according to ShopperTrak.

Retailers stepped up their marketing of gift cards this year, touting them as ideal for hard-to-please recipients and cheaper to mail than bulkier gifts. Many Wal-Mart stores this season had as many as 18 gift-card stations. More retailers joined Wal-Mart, Best Buy Co. and Circuit City Stores Inc. in allowing holders to redeem gift cards online.

An NPD Group survey conducted this month found that 61% of 63,000 respondents intended to give gift cards this season. Jim Loftus, a 60-year-old retired boilermaker in the Denver suburb of Conifer, Colo., bought gift cards for Apple's iTunes and Target Corp. stores this year for his five grandchildren because hitting the stores involves "too many people, too much of a headache," he said.

The National Retail Federation predicts gift-card purchases will total $26 billion this season, up from $24.8 billion last year and $18.5 billion in 2005. For many stores, the key to sales growth lies in enticing redeemers to spend more than the allotment on their card.

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Paul D. Deng
Department of Economics
Brandeis University
IBS, MS 032
Waltham, MA 02454
www.pauldeng.com