Thursday, December 04, 2008

Black Friday ends with a dour note

Here is the latest retail sales news on our holiday shopping. From MSNBC News:

NEW YORK - Retailers — with Wal-Mart the notable exception — limped through a miserable November that even a surge of shopping after Thanksgiving couldn’t save, marking the weakest month since at least 1969 and deepening fears that the critical holiday period could be the most dismal in decades.

As merchants announced their November sales figures Thursday, the deep malaise cut across all sectors as shoppers worried about layoffs and shrinking retirement funds focus on necessities. Wal-Mart Stores Inc., though, posted sales gains that surpassed Wall Street estimates and has seen more customers and higher average transactions as it benefits from what could be a deep and prolonged recession.

However, Costco Wholesale Corp., usually a strong performer, reported a bigger-than expected sales decline. And most mall-based chains and department stores such as teen stalwart Abercrombie & Fitch Co., Kohl’s Corp. and Macy’s Inc. fared much worse, reporting percentage declines of over 10 percent.

“It’s an awful beginning to the holiday season,” said Michael P. Niemira, chief economist at International Council of Shopping Centers. “This is going to be a difficult holiday season for most retailers. There are going to be more bankruptcies.” He predicted that the retrenchment in spending will linger for at least another six months.

According to the Goldman Sachs-International Council of Shopping Centers index of 37 stores, sales dropped 2.7 percent for November, making it the worst month since at least 1969 when the index began. November’s results were even more miserable than the 1 percent drop that Niemira anticipated. He noted that excluding Wal-Mart, the index declined a dramatic 7.7 percent, indicating a widening gap between the world’s largest retailer and the rest of the merchants.

The tally is based on same-store sales, or sales at stores opened at least a year, which are considered a key indicator of a retailer’s health.


Sales data from the Thanksgiving weekend showed a buying binge on Black Friday — so named because it historically was the day that a surge of shoppers pushed stores into profitability — but shoppers retreated the rest of the weekend.

And even at the stores on Friday, they focused on bargains and on small-ticket purchases as they slash their holiday budgets, meaning only modest sales gains for the weekend.

Now concerns are growing that shoppers won’t return to malls until the final days before Christmas, making the typical lull between Thanksgiving weekend and the final days before Dec. 25 even more pronounced as shoppers wait for the best deals.

So shoppers were out on Black Friday, but they were in a bargain buying mood. They focused on Black Friday to purchase their bargains, then stayed home for the rest of the weekend. Now the retailers are suddenly worried that shoppers will stay home until the final days before Christmas to finish their Christmas shopping--and the retailers are slashing their prices even further in order to move the inventory off the store shelves. The shoppers are going to wait until the final days before Christmas to get the best deals.

The big anomaly here is Wal-Mart. Wal-Mart reported a 3.4 percent gain in same-store sales, surpassing the 2.1 percent increase that analysts were expecting. Wal-Mart is expecting same-store sales to increase in December between 1 to 3 percent. Wal-Mart claims that its business is benefiting from falling gas prices, and that shopping trips increased because “customers had more discretionary income to spend.” I would say that is a bunch of crap. Gas prices have certainly dropped and customers are saving money. However shoppers are still worried about the declining U.S. economy, and are spending their shopping dollars more carefully, looking for the best deals they can find. And, like it or not, Wal-Mart does have some of the lowest retail prices on their merchandise. That is why shoppers have flocked to Wal-Mart. It is not that shoppers had more discretionary income, but that they were more careful at spending their discretionary income.

For the rest of the retailers, sales declines have been terrible. Target Corporation suffered a 10.4 percent decline, even as they have been focusing more on non essentials "like trendy clothes and housewares." Wall Street was expecting an 8.9 percent decline in Target sales. Costco reported a 5 percent decline in same-store sales, which is larger than the 2.4 percent drop that analysts were expecting. Macy's reported a 13.3 percent decline in same-store sales in November. Kohl's posted a 17.5 percent drop in same store sales. J.C. Penny's reported a same-store sales drop of 11.9 percent, while Nordstrom Inc. reported a 15.9 percent decline in same-store sales. Gap reported a 10 percent same-store sales decline, however the company claimed that "discounts were more aggressive than last year, a move that would affect merchandise margins." This strategy allowed Gap to clear out their inventory in November.

But the biggest sales drop came from teen retailer Abercrombie & Fitch, which had originally resisted deep discounting. Abercrombie & Fitch posted a 28 percent same-store sales drop. By refusing to discount their merchandise in this slowing economy, Abercrombie & Fitch saw their sales declines almost doubled to what the other retailers were reporting. Talk about a complete and utter screw-up by the Abercrombie & Fitch executives here.

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