Holiday comparable-store sales weren't quite as bad as expected, but unfortunately they confirmed one thing: Retailers are going to face a really bumpy road this year.
Looking at comp-store sales for November and December, the overall holiday selling period wasn't as downbeat as many retailers had feared. But both retail executives and analysts are growing increasingly nervous over 2008 with warnings of a recession — or "recession-like" conditions — as consumer spending slows to a crawl.
"Two-thousand and eight is going to be tough. Subpar growth for retail sales will persist until the labor market firms. As long as the labor market slackens and payrolls barely grow, retail sales growth will show its worst performance in years," said John Lonski, chief economist at Moody's Investors Service.
Consumer spending this year is expected to increase by less than 2 percent, which would be the worst calendar-year performance since 1991, Lonski said. Unless something favorable develops, there are not many reasons to be positive about consumer spending right now, he added.
After at least 18 months of robust same-store sales, some of the shine seems to be dimming in the department store sector as shoppers — saddled with higher living costs — head downstream to find bargains in a handful of specialty, off-price and mass merchants.
Meanwhile, of the retailers tracked by WWD, December same-store sales revealed what some analysts had warned: a sharp slowdown in consumer spending.
December comps declined 5.4 percent in the department store sector, while total sales for the channel dropped 5.3 percent. Mass retailers, on average, gained 1.1 percent, with total sales gaining 5.4 percent. Specialty retailers, on average, fell 3 percent, but showed a total sales gain of 5.4 percent, too.
Results came in pretty much as expected, which fueled a slight sell-off of shares on Wall Street in trading Thursday morning. But key words from the Federal Reserve Bank and a possible acquisition of beleaguered mortgage firm Countrywide Financial Corp. rallied the market in the afternoon trading session (see sidebar).
From the perspective of the consumer, who is contending with 30 percent credit card interest rates and $3 ATM fees, a spike in unemployment is causing some jitters. According to the U.S. Department of Labor, unemployment levels last month rose to 5 percent. That could continue to affect consumer spending moving forward, said Lonski.
Regarding December comps, results showed a clear pulling back from department stores. And, overall, the tallies were weak. Of the 41 retailers on WWD's radar, 27 posted same-store sales declines, while 14 were up.
Still, the picture brightens a little when looking at the November-December period combined. A calendar shift that has dogged comp results all year shifted almost a full week of holiday shopping into November from December. Financial experts said this could have impacted December results across all channels.
On a two-month basis, net sales in the department store sector remained practically flat, increasing 0.7 percent. Net sales in the specialty sector grew 9.7 percent during the two-month period, while mass merchants increased 6.7 percent during the same eight weeks. An analysis of the published same-store sales for the two-month period show an average gain of 2.5 percent in the mass channel, a 1.3 percent increase in the department store sector and a 1.6 percent decline in the specialty channel.
Unfortunately, Wall Street likely will ignore the two-month net sales and comp averages and focus solely on the poor December results.
From a higher altitude, December results affirmed expectations. "The retail numbers leave little doubt that shoppers are in belt-tightening mode. No part of retail spending is immune right now. From stores to online retailers and lower-income to higher-income shoppers, there are signs of weakness that will persist into 2008," said Frank Badillo, senior economist and director of the Retail Forward KnowledgeBase.
In the department store space, higher-end retailers such as Bloomingdale's and Saks Inc. benefited from tourism dollars in areas where they operate, said Dana Telsey, chief research officer of Telsey Advisory Group. Within the channel, Telsey said designer clothes at Nordstrom appeared to be weaker than at Saks. Nordstrom Inc. reported a decline in same-store sales of 4 percent, slightly lower than consensus estimates.
Saks faced difficult comparisons to last year as well as the last few months. The company reported a 0.8 percent gain in December, which beat consensus expectations of a 1.5 percent decline. In November, Saks reported a 25.7 percent comp increase.
Macy's Inc. declined 7.9 percent in December. The company released the average same-store sales for November and December at the same time, noting that it is a better indication of the holiday period because of the calendar shift this year. For the two-month period, the retailer said comps were down 1.1 percent.
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