Reuters
Retailers Slash Prices as Sales Sputter
Tuesday December 16, 5:19 pm ET
By Emily Kaiser
CHICAGO (Reuters) - U.S. retailers flinched first in their annual holiday face-off with consumers, unleashing a fresh round of steep discounts to salvage what remains of a disappointing Christmas shopping season.
Before the season got under way, forecasters said tight inventories and improved consumer sentiment would help retailers avoid profit-squeezing clearance sales this year. Even so, stores are now slashing prices in the face of sluggish sales, raising concerns about fourth-quarter earnings.
"The idea that this is going to be a year without any markdowns is ludicrous," said Craig Johnson, president of consulting firm Customer Growth Partners. "You go into some of these stores and in every single aisle there's a sign that says '50 percent off,"' he said.
Sears, Roebuck and Co. (NYSE:S - News) even issued a press release pointing out that "while some experts speculated that this holiday season might not be as promotional as in the past, the promotions are on and Sears is in the game aggressively."
Retailers are counting on the last weekend before Christmas living up to its billing as the busiest shopping period of the year, but Wall Street remained unconvinced, and shares of many retailers fell on Tuesday.
Two of the biggest chains -- Wal-Mart Stores Inc. (NYSE:WMT - News) and Target Corp. (NYSE:TGT - News) -- on Monday said December sales were not as strong as many analysts had hoped.
Home decorating chain Pier 1 Imports Inc. (NYSE:PIR - News) said on Tuesday that December sales were not as good as expected, and it may miss fourth-quarter earnings targets.
"It now seems that only heavy sales in the week before Christmas will rescue the season," said Martin Bukoll, retail analyst with Northern Trust, which holds shares in Wal-Mart, Target and other retailers.
Indeed, with just nine shopping days left until Christmas, trade groups were talking up surveys showing that most people had not yet finished their holiday shopping.
But Wall Street wasn't sold on the promise of a last-minute sales surge. The Standard & Poor's retailing index (^GSPMS - News) was down 0.2 percent in afternoon trade, although off its earlier lows. The broader S&P 500 chalked up a small gain. The retailing index has shed 7.2 percent since Dec. 1.
"If the last-minute (sales) volume does not materialize, downward earnings revisions will be needed," said J.P. Morgan retail analyst Shari Eberts.
GIVING UP TOO SOON?
The holiday shopping season in November and December accounted for nearly a quarter of retailers' annual sales last year, and some stores earn all of their profits in that period.
In 2002, a weak economy and worries about war in Iraq hurt consumer spending, and the holiday season generated the smallest sales gain in more than 30 years.
This year was supposed to be different. Stellar third-quarter growth and an improving job market were expected to drive a 5 percent to 7 percent increase in holiday sales.
Some industry-watchers say the stock market may be giving up on the holidays too soon, noting that the measures that most analysts use to gauge retail sales can understate demand.
Analysts usually focus on sales at stores open at least a year, which factor out newly opened or remodeled stores. But Wal-Mart and others open hundreds of new stores every year, which don't show up in the same-store sales reports.
And some holiday favorites such as electronics stores and home improvement chains only report sales quarterly, so analysts may be missing holiday strength there too.
Luxury chains like Tiffany & Co. (NYSE:TIF - News) and Coach Inc. (NYSE:COH - News) report quarterly as well, meaning analysts will have to wait until they report earnings in February to get an accurate read on high-end demand.
"The American consumer is much steadier than a lot of these prognosticators or Wall Street types think," Customer Growth's Johnson said. "The overall sales are still going up." |
