Following Holiday Boom, Are Retail Sales Headed for a Bust?

In What's New, Industry News by Accessories Staff

New York—While consumers continued their holiday shopping sprees last week following Christmas Day, several surveys indicate a pullback in spending may be setting in.

The International Council of Shopping Centers (ISCS), which has been tracking sales at 24 major retailers throughout the holiday season, reported today that its ISCS/Goldman Sachs Weekly Chain Store Sales Index found that sales increased 5.3% over 2010 for the week ended Dec. 31, the biggest gain since the week of July 11, 2010. Comparable store sales were up 1.2% over the week leading up to Christmas.

Thanks to an increase in gift card redemptions, milder weather in most of the country and a federal holiday falling on the day after Christmas, December sales may wind up even better than expected.

“The last few weeks of December helped to lift the full-month performance above our earlier expectation,” Michael Niemira, ICSC’s chief economist said.

Consequently, the ICSC raised its December sales estimate to 4% to 4.5% from its previous 3.5% to 4% estimate. Moreover, for the November-December holiday season, the ISCS now expects total sales to rise by 3.8%, up from its previous forecast for a 3.5% increase.

Sales Rise, but Retailers’ Profits?

Although the sales increase sounds optimistic, the ICSC cautioned that even with the stronger-than-expected sales some retailers may face squeezed margins due to aggressive discounting, free shipping incentives and longer store hours.

“The concern going into the season was that the profitability wouldn’t be as high as a year ago,” said Niemira. “I suspect adjustments will have to be made.” That could range from some stores closing unprofitable locations to changes in marketing strategy.”

All the more reason to increase the focus on product, rather than price, advised Marshal Cohen, chief industry analysts at The NPD Group, Inc.

“What retailers and brands need to do now is move into ‘product mode’ not just stay in ‘price mode.’ Product needs to become the focus of businesses sooner rather than later because in order to get growth there needs to be something really new and different to capture consumers’ dollars,” said Cohen. “Consumers did show us they shop for deals but they also showed us they would purchase new products that are relevant. So as the deals are waning new products need to emerge. Profit margins can’t afford a full-time discount program…selling at full price and building margin is where these exciting, new and relevant products come in.”

In its Shopping Activity Weekly Holiday Trends report, which surveys 4,750 consumers daily, NPD found that for the week ended Jan. 2, consumers already have begun pulling back on spending. Overall visits to brick and mortar retailers declined as did the average amount spent per buying visit. The average amount spent was down 6% from the prior week, decreasing to average amounts seen during pre-Black Friday levels.

And while visits to nearly all channels of retailers declined, conversion rates—when shoppers made purchases on their store visits—remained stable at 67.9%. Online buying visits declined to 11.7% down from 13.9% the prior week, bringing online share of buying visits back to pre-holiday levels.

Shoppers Face  Holiday Hangover?

“While this is not unexpected or surprising, it remains one of the greatest challenges of retail, how to sustain the interest and momentum of the holiday season after Christmas.” Cohen added.” For the post-holiday shopping season this year we have seen fewer inventories to give away, the season was front-loaded self-gifting. And most important, a lack of newness haunts holiday again. There were so few key items odds are you got it and didn’t need to go out to shop for it after Christmas.”

According to Charleston, South Carolina-based America’s Research Group (ARG), post holiday sales may plunge to their lowest level in years as consumer begin receiving bills for their holiday purchases.

“Shoppers will cut back in a very significant way relative to January and February of the last few years,” said ARG chairman Britt Beemer, which could have a negative impact on the critical Super Bowl TV-selling period.

Beemer said Black Friday was so huge a draw that a record 44% of Americans said they exceeded their spending limit, which is much higher than the 15% and 16% levels that preceded major drops in credit card usage over the last two years.

Beemer also blamed online spending for the spike in credit card debt, as e-commerce sales, which are almost entirely credit card driven, rose from 16% to 26%.

“Unless consumers see ‘70% off’ they will be holding back in January and in February and possibly into the spring.”

 

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