Wednesday, January 15, 2014

Holiday sales gains may have come at a price

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The nation's retailers battled bad weather, a short holiday season, economic uncertainty and each other to drive a 3.8 percent increase in total sales across November and December -- but the gain may have come at the cost of profits.

"Undoubtedly, some of the increase came at the expense of margin," said Jack Kleinhenz, chief economist for the National Retail Federation in an official release Tuesday offering the Washington, D.C., trade group's assessment of the holiday period.

The group, which had projected a 3.9 percent increase in holiday sales, called the final results that drove $601.8 billion in sales a success. Matthew Shay, president and CEO of the retail federation, described the performance as a testament to a resilient industry that knows how to deliver. He also made the case that it's a sign the economic recovery is picking up steam.

But the hard-fought battles did damage along the way, with some chains notifying investors in recent weeks that fourth-quarter results would be weaker than they had hoped.

That included American Eagle Outfitters, where sales in established stores fell 7 percent during the nine weeks ended Jan. 4. In a presentation at an analysts conference Tuesday, executives for the South Side teen clothing retailer acknowledged that they'd seen profit margins slip and that reducing markdowns is Printable Coupons this year's to-do list.

"It was widely reported to be a knockdown drag-out holiday between retailers with deep discounts putting added pressure on margins," wrote Ken Perkins, president of Retail Metrics Inc. in Swampscott, Mass., in a report this week. If retail profits overall finish down for the quarter, he said, that would be the first such dip since mid-2009, at the height of the Great Recession.

Results were uneven across chains. Macy's last week reported that sales at stores open at least a year rose a solid 4.3 percent in November and December, while Target noted that its sales dropped after a massive breach of customer credit and debit card information was revealed just before Christmas.

Overall, the pacing of this year's shopping was uneven, which probably contributed to stepped-up discounts, according to Chicago consulting firm ShopperTrak.

Like the retail federation, ShopperTrak read the holiday season results as an indication that the economy is growing, but said a big break that customers took after the Thanksgiving weekend pressured retailers to offer even more deals. Bad weather early in the month didn't help, exacerbating the issue of only having 25 days between Black Friday and Christmas, compared to 31 days in 2012.

ShopperTrak founder Bill Martin said, in his firm's report, that an improving economy should help profit margins. "As consumer confidence grows, there will be less need for retailers to heavily promote and discount their offerings."

Teresa F. Lindeman: or at 412-263-2018.

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