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It hasn’t been a cakewalk, yet after the final big shopping weekend of the year and the onset of steeper markdowns, retailers are easing out of holiday selling into clearance mode feeling OK about business and ready to bring on spring.

This story first appeared in the December 28, 2009 issue of WWD. Subscribe Today.

The verdict is a preliminary one, of course, with December sales not being reported until Jan. 7, and about five weeks remaining in the fourth quarter that ends Jan. 31. Not to mention double-digit unemployment and difficulties for consumers getting credit.

However, there’s been a discernible shift in the tone among retail executives in the last few weeks. Many predict improved margins and profits for the fourth quarter even with flattish sales, a consequence of lower inventories and demand. Beyond that, some suggest real and long-awaited top-line growth occurring in 2010, most likely in the second half.

The upbeat outlook stems from a more controlled, less panicky holiday season. On Christmas Eve, “We went home with big smiles on our faces,” said Bloomingdale’s chairman and chief executive officer Michael Gould. “We feel good about the business and the quality of the business we ran. Last year in December we were drastically reducing inventory to get ourselves in a better position for spring. This year we had a very good flow of receipts all season long. We will continue to bring in newness unabated. With new receipts coming in, we have a good opportunity to keep the momentum going.”

“There is certainly a more positive feeling and the sense that we’re back to a normal rhythm” of business, said Pete Nordstrom, president of merchandising for Nordstrom Inc. “We are happy we made our plans.”

Lord & Taylor said it’s already been building up inventory. “Taking a more aggressive stance has paid dividends,” said Brendan Hoffman, president and ceo. “We have been trending in the mid- to upper-single digits. December should end up right there. We seemed to have recovered most of what we lost in the storm” that blanketed the Northeast on Dec. 19.

“Retailers have tight inventories. So do the brands, so there is not a lot of chasing,” said Ron Frasch, Saks Inc.’s vice chairman and chief merchandising officer. “There are certain areas you can chase, but pretty much across the board it’s not so easy in the first quarter. You can cash in on some ideas in the second quarter.”

Kathy Bufano, president of merchandising and marketing for the usually reticent Belk Inc., based in Charlotte, N.C., said the department store is ahead of plan and had “a really, really strong” holiday, particularly in men’s polo shirts, sweaters and sport coats, women’s dresses and boots, and fine jewelry, especially whimsical pendants and diamond studs. Denim was a surprising gift item this year, Bufano added.

“Our inventory is very in line and even a little light. It’s a huge improvement from a year ago. Based on that, we feel really good about spring,” she said.

American Apparel Inc. founder and ceo Dov Charney said that this year’s buy-one-get-one hosiery promotion was successful, but something the company wouldn’t typically turn to, given American Apparel’s dedication to all-season, basic mainstays like T-shirts.

“The market is stabilizing, we’re feeling very good compared to last year,” said Charney. “I would say we are in fair condition inventorywise.”

“November and December were so strong for us,” said Susan Davidson, ceo of Scoop. “I see them as a harbinger for 2010. We received quite a bit of pre-spring at the end of November and December. We are starting to sell resort product.”

Rain and a little snow did affect Boscov’s, the Reading, Pa.-based department store chain, the day after Christmas. “It was not a plus day,” said a spokesman. ”But it was a successful season. While it wasn’t plus volume, it was volume at a very high level,” meaning less discounting. “We are predicting to be right on our inventory plan. We won’t have problems liquidating in January and February.” As far as sales next year, “We see a gradual improvement.”

One note of caution did come from a chief merchant who requested anonymity: “The results in most cases are going to be better. Everyone has less inventory to dispose of. That doesn’t mean people are all going to be making money. There’s hundreds of millions of dollars of volume that doesn’t exist anymore.”

In a breakdown of sales by product and store type, SpendingPulse, an information service provided by MasterCard Advisors that estimates total U.S. retail sales by cash, check or credit card, found that specialty apparel made “something of a recovery,” finishing down only 0.4 percent from Nov. 1-Dec. 24, and up 2.3 percent since Black Friday. Women’s apparel overall was down 0.3 percent for the season, and up 1.5 percent since Black Friday.

In other categories for the season, men’s apparel grew 3.9 percent; footwear rose 5 percent, and electronics increased 5.9 percent. Jewelry was volatile, but came out up 5.6 percent.

“I think we had a decent holiday season,” said Kamalesh Rao, director of economic research at MasterCard Advisors Spending Pulse. “There was a cautious return to spending, some numbers look pretty strong, tempered by last year’s pretty terrible holiday season. In general, there was modest growth. The spending environment probably stabilized with some signs of life. E-commerce is the story of the holiday season. It says more about shopping habits and little about the spending environment. People are a lot more comfortable shopping online.”

SpendingPulse estimated e-commerce sales rose 15.5 percent from Nov. 1 to Dec. 24, and 18 percent since Black Friday.

From Nov. 1 to Dec. 22, online spending reached $22.5 billion, a 4 percent increase over 2008, which was down 3 percent versus the year prior, according to comScore Inc. Because online spending typically slows in late December, the firm does not report final seasonal numbers until early January. The biggest shopping day online this year was Tuesday, Dec. 15, the second Tuesday in December, with $913 million spent.

“We bet the economy would come back and it really worked out for us,” said Aaron Magness, Zappos director of brand marketing and business development. Zappos built out its categories and did not cut inventory.

At Shopbop, resort, holiday dresses, and boots were big sellers. The contemporary store sold more than in 2008 and did not offer the one-day discount codes it resorted to last year. The store started seasonal markdowns Dec. 1. But Dec. 16 and 17 were “huge” days for the retailer, whose cut-off for guaranteed ground shipping was Dec. 18. Shopbop redesigned its site in July and now offers the ability to shop by style. Shopbop and Zappos are owned by Amazon.

At Venture Commerce, which runs online stores for brands such as Ella Moss and Geren Ford, holiday sales were about 30 percent up over last year, said ceo Sukant Jain. “We saw a broad decline in 2008 sales, which stayed at a plateau for most of 2009” until the holiday season. The spike in November and December did not come “without sacrifice,” however. “Promotions and value have been the necessary catalysts for sales,” he said.

At Neiman Marcus Direct, the biggest day was Tuesday, Dec. 15. Boots, novelty gifts, Neiman’s-branded food and cashmere were the bestsellers, said president and ceo Gerald Barnes.

Across the Neiman Marcus Group, shoes, cashmere and anything with sequins were selling strong.

“It was a big weekend,” said Nordstrom. “We don’t break any price in men’s until the day after Christmas. It builds up a lot of demand.”

The day after Christmas, people crammed major shopping streets and suburban malls in a surge that seemed surprising considering the tepid tone of the holiday period overall, and the nasty weather. Retailers reported strong traffic and volume on plan for the day, generally, though not of the magnitude of Black Friday or enough to move the needle for the season. New York’s Fifth Avenue, like much of the Northeast, was a wet, sloppy sea of shoppers dodging umbrellas and skipping over puddles to get into gift destinations like Disney, Tiffany & Co. and Abercrombie & Fitch.

Bloomingdale’s and Macy’s too were among the most crowded stores, while Saks appeared most busy on its main floor, the contemporary floor and in shoes on eight.

“It was so busy on our shoe floor that we actually had to close it for awhile to reorganize the assortment,” Frasch said. “It was a good day, a strong day.”

The week after Christmas, Frasch said, “is important. It probably shouldn’t alter the month [significantly], but if you are doing well, you can enhance your performance.”

Shoes, handbags and men’s wear have been pacing the business, Frasch noted.

Michael Celestino, executive vice president of store operations for Barneys New York, said business “definitely picked up in the days prior to Christmas and the trend proved to continue post-Christmas as well.”

As a result, he said, “We should achieve our projections for the month, and we still have a few days left. But at this point, all is well.

“The next big test will be once we’re out of clearance mode and back to full-price selling,” Celestino said. “We’ll see how the customer reacts. But, so far, the reaction of new receipts has been positive.”

Malls in New Jersey and New York, including Queens Center, Cross County Shopping Center in Yonkers, and Paramus Park, N.J., were all busy. Southern California however, remained the most challenged for traffic, and there was some disruption in the Midwest where snow fell. Still, Caruso Affiliated spokeswoman Jennifer Gordon said the development company’s retail properties, including The Grove and Americana at Brand, both in the Los Angeles area, saw a 20 percent increase in traffic Saturday.

Taubman Centers reported traffic and sales at many of the malls its operates were strong with most people — 65 to 85 percent of the shoppers depending on the mall — buying rather than returning or exchanging items. Apparel and electronics were the two biggest selling categories.

“Inventories are lean, and spring merchandise is on display at a number of stores. Most stores surveyed were trending up for the day versus the day after Christmas last year as of 2 p.m., Saturday,” said a Taubman spokeswoman.

South Coast Plaza in Costa Mesa, Calif. reported jewelers and footwear retailers saw strong business, as did Henri Bendel’s recently opened accessories store and Miu Miu’s new location. Louis Vuitton and Tiffany had lines out of their doors and at times needed to keep people out until some left.

“We saw a lot of returns, but there were also a lot of shopping bags in the center, and retailers preliminarily reported some solid sales,” spokeswoman Debra Gunn Downing said.

South Coast Plaza saw 130,000 visitors on Saturday, a strong showing though well shy of the estimated 200,000 visitors the upscale 2.8 million-square-foot center drew during peak pre-recession years.

Elyse Walker, of the Pacific Palisades store in Los Angeles bearing her name, said, “People are buying again. We’re not seeing record-breaking dollars, but are seeing a record-breaking year in volume of gifts, even little things.” Walker slashed her inventory by 30 percent, cut her budget 28 percent and operating expenses by 19 percent — and said those actions stabilized her year in the face of sharply declining sales. She noted that Missoni scarves and home items like blankets and candles sold better than apparel this year.

“Last year was so horrible that this year, even though it isn’t as great as historically the holiday season has been, we’re so thrilled to see even a bit of positive movement,” said Michael Mente, co-founder of online retailer, which has a brick-and-mortar outpost on Melrose Avenue in L.A.. “It’s the difference between losing a ton of money and making a little bit of money.”

Mente scaled back his inventory more than 40 percent and said online promotions were marginally effective. “Last year, everyone was on sale so early is seemed like half the game was catching up and keeping an eye on everyone else. At least this year we’re selling things at a profitable rate and starting things at full price,” Mente said.

Fraser Ross, owner of the L.A.-based Kitson chain, said accessories and gift items carried the season. Kitson stores took a 25 percent markdown on selected items before Black Friday and 30 to 35 percent markdowns on Saturday. “We still have about five more days left for our holiday season and have to do very strong business to close out the month,” Ross said. “Last year it was all doom and gloom. This season is longer, in part because of necessity and in part because people are going back to work later, say the 5th or 6th of January — that’s definitely a more extended selling period than we’ve had in a few years.…We chased the trends all year, and with accessories in particular it’s easier to order immediates.”

Diane Merrick, who owns her namesake boutique on L.A.’s Beverly Boulevard, said Saturday saw remarkably slow foot traffic considering it was the day after Christmas. Merrick said she would deeply discount her leftover fall merchandise today to between 50 and 70 percent off regular prices.

“I used to try to hold out until later in January to markdown the fall stuff, but then it would never sell,” she said. “You have to smile and just cut the prices, knowing you’ll make less money, but that at least you’re moving it out. That’s what it takes to bring people in; 30 percent off this late doesn’t work.”

Forty Five Ten in Dallas had a strong December driven by jewelry trunk shows and early receipts of resort fashions, said Brian Bolke, co-owner. “It totally exceeded all of our expectations. We were up 23 percent in December. It was our highest volume ever and we started with 10 percent less inventory, but we took a lot of resort deliveries that were colorful and wearable and not too spring looking, and I think it made a big difference because so much was new and it looked great.”

Top performers included The Row, Yigal Azrouël, Narciso Rodriguez, Kimberly McDonald and Ippolita.

The weekend’s outcome was further evidence that holiday shopping gets later and later each year. It also showed that it takes big discounts to continue to bring in big crowds. Increased tourism, particularly in Manhattan, and the extra day of shopping between Thanksgiving and Christmas compared to last year, contributed to the relatively positive mood.

Some retailers could be questioning whether they should have accelerated markdowns sooner to get more pre-Christmas shopping. They were cool and contained when it came to price cuts, compared to last year’s discounting tsunami, and convinced this year’s strategy largely worked. Markdowns did noticeably increase on Saturday. While stores did blast savings up to 75 percent in their windows and ads, the sharp discounts were in many cases attached to certain items only. Much more of the merchandise was marked down 40 to 50 percent. Gap ran markdowns on select items up to 70 percent off, and Saks offered from 8 a.m. to noon an additional 50 percent off already reduced prices for a total of up to 70 percent. Bloomingdale’s offered savings up to 75 percent off a wide range of fall items, while the latest styles were in the 30 to 50 percent range. St. John, Façonnable and Dress Barn, were selling some items up to 60 percent off. Lord & Taylor offered a $15 bonus card for the first 300 shoppers Saturday and Sunday, and 60 to 80 percent “all over the store” and a 20 percent off coupon valid on sale and clearance merchandise, with some exclusions.

This week, “There will be a lot of exchanges, people redeeming gift cards and a lot of bargain hunting,” said analyst Walter Loeb. “It’s often called the 53rd week. It tends to be busy.”

For Nordstrom’s men’s half yearly sale, which traditionally starts on Dec. 26, the merchandise was being offered anywhere from 25 to 50 percent off, with the bulk in the 30 percent range, while women’s was in the 33 to 50 percent off. Typically when the markdowns exceed 50 percent, the goods go to Nordstrom Rack, the company’s clearance chain.

For the season overall, “We thought we did a good job offering gifts in a balanced way across prices. Outerwear was good and a lot of that was because we had real focus on outerwear under $100. But we have also been selling leather jackets and cashmere north of that.”

Nordstrom also cited skinny jeans, leggings, and “a great season for boots,” including Nordstrom’s “biggest ever” season with Uggs and strong selling in Hunter boots. In accessories, watches was the best category, he added.

With inventories under control, “We pulled some spring receipt forward to chase demand over the last 30 days. In January, a lot of regular price spring goods will be flowing in.”

With gift card sales strong, he expects much of the merchandise to move at regular price. He did acknowledge some disparity regionally.

“The storm on the East Coast hurt us, but business bounced back. The more challenging business continues to be southern California.”

Similarly, Lou Amendola, chief merchandising officer for Brooks Brothers, characterized the day after Christmas as “really strong. We were up double-digits over last year and single-digit over plan. And we were more profitable than the year before.”

He said the last week did see a surge in gift-card sales, which “traditionally drives after-Christmas sales. Maybe there’s a sense of urgency that people feel they have to use them right away,” he said.

Or it could be the post-holiday promotions. In fact, this coming week traditionally represents “big numbers” for Brooks. “We actually do more business this week than the week before Christmas,” he said.

The strongest sellers of the season were sweaters and sport shirts. In all cases, however, Amendola said customers shied away from the highest-priced items.

“They didn’t buy cashmere sweaters. They bought merino sweaters or knit shirts. People definitely had the under-$100 mentality,” he said.

Bob Mitchell, co-president of Mitchells/Richards/Marshs in Connecticut and New York, said he was “very happy” with business over the holiday season. “We saw many more smiling customers and most were saying that things are getting better.”

Sales were led by men’s sportswear and women’s jewelry, and a “blend” of value-priced and true luxury items.

“People are still price-sensitive,” he said. For example, cotton or cashmere zip tops for men sold well but so did luxury sportswear pieces from Loro Piana, Cucinelli and Zegna.

“That person was out of the luxury market last year,” Mitchell said, but this year, picked up $300 private label cashmere sweaters along with a $900 offering “from one of the luxury players.”

He said men’s tailored clothing “continued to be challenging,” along with shirts and ties. “There’s still not growth there.”

But women’s jewelry, notably diamonds and colored stones in “classic settings,” did perform. The relative strength of the 2009 holiday season leads Mitchell to believe that 2010 “will get better — not jump for joy better, but double-digit for the year better.”

And with the year drawing to a close, the big question retailers and others are now asking is: Where will consumers put more of their disposable dollars next year? Kurt Salmon Associates Consumer Research and Analysis department surveyed 8,000 consumers via the Internet for nine months through November and compared that stretch with the last three months of the period to determine where consumers are spending more and where they intend to spend more. Categories with the most positive momentum, in descending order, are home goods, in particular bedding, linens, drapes, lamps; then shoes, home improvement and hardware; restaurants; electronics; furniture; sporting goods; toys; health and beauty aids; men’s dress clothing; men’s casual clothing; children’s clothing; women’s dress clothing; CDs and DVDs; books; women’s casual clothing; groceries; candy; beer/wine/alcohol, and lawn and garden.

Alan Shor, president of the Retail Connection consulting and brokerage firm, said, “Sales started off relatively soft as customers waited, and then the week before Christmas there was some pretty tough weather so the e-tailers will have a pretty good season.”

In addition, people cut back on giving gifts, and many businesses made charity donations instead of giving presents, he said. “Cutbacks on consumption are acceptable,” Shor noted. “This whole recession has been a wake-up call for the consumer….The retailer was ready for the slowdown with less inventory, less personnel, fewer stores. I do think it will be more disappointing than expected but the retailer was bracing for this.

“Last year was the worst year for retail in 20 to 30 years; this year is better, but still among the top five in terms of markdowns and low sales volume,” said analyst Eric Beder with Brean Murray, Carret & Co.

“There’s no rush to put in the spring merchandise because people are buying more on need,” he said. “The retailers have gotten smarter and are selling current items, not rushing into carrying spring product. There are still two or three months of winter left to sell.”