NEW YORK — Disappointing holiday sales don’t tell the whole story.
While retailers spent Monday crunching the numbers from the Christmas season, the subtexts of 2004 are the continuing boom of gift cards and growing Internet sales, an extended shopping season (well into January) and a reengineering of the financial dynamics propelling stores through the fourth quarter.
And all of those add up to what are expected to be strong fourth-quarter profits for stores even as they report less-than-stellar holiday sales.
Stores often receive low marks for merchandising creativity, growing the top line, capturing new customers and for service, which hardly exists.
But when it comes to what counts the most — the bottom line — retailers are expected to come out fine. That’s due to nimble inventory management, cost and employment controls, not pushing the panic button on markdowns during this challenging holiday season, and a post-Christmas week that’s taking off.
“Retailers have done a good job of financial engineering,” noted Carl Steidtmann, chief economist with Deloitte Research. “I don’t think we’re seeing nearly the same level of promotional activity as a year ago. Retailers are very disciplined. They are maintaining inventories very tightly and they have kept their employment pretty tight.”
What does inventory control entail? It’s all about “having the right inventory, being able to recognize good sellers early, stocking up on those and cutting losses quickly, maintaining close relationships with suppliers to respond quickly to changes with consumer demands,” Steidtmann said. Some retailers have also employed markdown management software to control promotions, and therefore, profits. The results are measurable.
Steidtmann predicted operating profit gains for the fourth quarter, on average, will be in the low double digits, and the year’s profits “will be along those lines as well, if not a little better,” he said, considering the current quarter is up against a strong comparison to a year ago and spring ’04 was so buoyant.
The fourth quarter for apparel retailers accounts for about 40 percent of annual sales and roughly 50 percent of annual profits, Steidtmann said. Jewelry retailers would score more of their sales and profits in the fourth quarter, and food retailers would score less, he noted.
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