NEW YORK — Retailers got a small gift at the end.

Consumers finally turned out to shop, purchased at bargain-basement prices and put some stores above downwardly revised December projections, raising expectations that the increasingly-important post-Christmas week could also be good. Yet whatever transpires in late December, won’t make up for weeks and weeks of desperate discounting and anemic consumer traffic nationwide.

The full story will not be told until February, when retailers begin to report fourth quarter results. Following a fall-holiday period devastated by the recession and the events of Sept. 11, department and specialty stores will show serious profit declines and margin erosion, reflecting the spending lethargy and the steep markdowns required to move merchandise all season long.

“The last five or six days of business is not going to change projections or plans for spring and for some time,” said Dan Edelman, chairman and chief executive of The Bon Marche, based in Seattle. “We think there will be an upturn in ’02, with positive comps possibly by the second quarter.”

“2001 will go down as one of the toughest Christmases,” said Macy’s East chairman and ceo Hal Kahn. “Every possible thing that could go wrong went wrong, but we’re coming out in a very good situation with our inventories in line. We don’t have any inventory overhang other than coats, slippers, gloves and mufflers. Still, it will be a tough spring, the [weak] economy and the fear of traveling is still there and there will probably be more layoffs, before hiring. But we will meet our post 9/11 expectations on profitability. We had to flex our business down, get our inventory in line, and considering everything, we did an outstanding job.”

“The weekend was better than we planned, stronger than our projections,” said Mark Shulman, chief operating officer of Retail Brand Alliance, which operates Casual Corner, Adrienne Vittadini, Carolee and will complete its purchase of Brooks Bros. early next year. “I still think it’s been a very difficult December for everyone. Sales could conceivably have been better [in the last few days] than they have been, but it’s still costing a lot to get those sales. The markdowns are deeper and more aggressive, and the proof will come when retailers start reporting their margins.”

According to retail executives and analysts, fourth quarter sales are expected to come in flat or down mid-single digits at department stores, such as May Co. or Macy’s parent, Federated Department Stores.

Catalogs will also show negative single-digit declines; and major specialty chains, such as Gap Inc and Abercrombie & Fitch, will be down in the high-single digits to teens. On the other hand, big discounters, such as Wal-Mart, will show comp-store sales up in the low single digits.

“We already baked into our numbers significant margin erosion and lower comp-store sales,” said one Wall Street analyst. “I don’t see any major changes to the downside or any reductions in earnings estimates. There could be some positive surprises compared to expectations, but on average, results will be in line with expectations.”

The analyst said margins will be down across the board, with specialty apparel companies dropping as much as 1,000 basis points, department stores losing 100 to 300 basis points, and big discounters, despite their better performances, experiencing a 100 basis point decline in part due to selling more consumables, which have lower margins, and higher markdowns in apparel.

Consequently, retailers are playing it safe for spring — perhaps too safe. With inventory planning cautious for the next two quarters, there’s fear of shortages on hot items and that presentations will be dull.

“One of the dangers going into the spring season after such a dismal fourth quarter is that retailers, especially those department and specialty stores most affected, would fall into an over-defensive mentality,” explained Arnold Aronson, managing director of retail strategies for Kurt Salmon Associates. “They’ll play to avoid losing rather than play to win. Inventory, service, presentation — all the creative things it takes to jump-start business back into the positive zone — will be getting so conservative that nobody puts their best foot forward, and the winners, like Wal-Mart, Target and Kohl’s take the opportunity to win even more market share than they have now.”

“One of the biggest challenges next period is insuring you have enough product,” said Ron Frasch, chairman and ceo of Bergdorf Goodman. “All of us reacted very aggressively. We are all running things tight. If you catch a winner,” meaning a hot item or resource, “it may be difficult to chase it.”

Companies are also slashing capital expenses for next year, meaning fewer store openings, and there’s widespread speculation about store closings from a host of retailers, including Saks Inc. and its Saks Fifth Avenue division, Gap, Sears, Roebuck and even J.C. Penney, which fared better through the holiday period than many of its competitors and is continuing turnaround efforts. Such regionals as Ames and Jacobson’s recently announced downsizings.

There is a bright side. Retailers got through the season, on or close to revised post-Sept. 11 plans. Inventories are clean, fresh resort and spring goods are flowing in and no major bankruptcies are expected anytime soon, despite rumors.

Leading categories included: books, home entertainment including video games, electronics, CDs, DVDs, home decor, toys and housewares. In fashion, men’s and women’s accessories, sweaters, twinsets, jeans, sleep and loungewear were generally good. Resort and early spring receipts have been selling, according to retailers. Dragging down the results were cosmetics, luggage, outerwear and most of apparel, while men’s wear continued weak, but with a slight uptick.

Carl Steidtmann, chief economist for Deloitte & Touche, said in a statement: “Inventory levels relative to sales are very low this season, so it won’t take much demand to stimulate production again. Because business cycles are driven by inventory levels, this is good news for the economy. As manufacturers begin to ramp up production to restock, the stage could be set for a recovery.”

“Everybody’s main objective, once they saw they weren’t going to make sales, was to come out clean, and be able to move in the spring merchandise,” said the Wall Street analyst.

And at least the season concluded on an upbeat note.

On Monday, Wal-Mart Stores said last week through Friday it was meeting the sales plan, after dropping below plan the week before. The Sam’s Club division was still tracking below plan.

Major mall developers also saw signs of a pickup, but traffic for the week overall was down compared to last year. Anthony Deering, chairman and ceo of The Rouse Co., said based on reports from several regions, “Traffic is down slightly from last year, from the weekend through [Monday] morning, maybe down 1 percent for last week. The weekend was incredibly busy, partly due to the weather, where suddenly it felt like almost like Christmas. Some of the retailers we spoke to were expecting lousy business, so it was better than expectations.”

“Traffic was off a bit, moreso Saturday than Sunday, but the business felt like it was there,” said Karen Macdonald, communications director for Taubman Cos. She said on Monday, mall traffic started kicking in around 11 a.m. and would start thinning out by 3 p.m.

At South Coast Plaza in Costa Mesa, Calif., “We showed a gain in November and it hasn’t stopped,” noted Debra Gunn Downing, a spokeswoman who characterized the weekend traffic as very heavy. “Orange County’s economy is still relatively strong and that’s contributing to it,” she said. “Consumer confidence became positive after a very low point in September.”

Even Barneys New York, Nordstrom and Bergdorf Goodman, all hurt by the sharp luxury downturn of the past year, cited improvements during the final hours of gift shopping. Luxury stores in the city reportedly saw volume drops of around 20 percent this season.

At Bloomingdale’s, “The last few days were very good,” added Michael Gould, chairman and ceo. “We were way over plan Sunday, and the business at night was very strong,” though the week overall was slightly behind plan. “There was some pent up demand out there.” He said Bloomingdale’s was ahead of plan for the month and has “so much business to do post-Christmas.”

Gould cited unemployment and the decline in tourism as major deterrents this season. The first half of 2002 should be tough for retailers, Gould predicted, particularly those retailers concentrated in urban areas suffering from steep drops in tourism, such as New York, Chicago, Palm Beach, and Las Vegas.

But he did say customers are buying “specialness” seen at Bloomingdale’s in such categories as high-end ornaments, Young East Sider, and boots, where he credited his store for having a “dominant” display of fashion. He also said that the costume jewelry and trim businesses were good, fragrances were “OK,” while cosmetics were disappointing.

“One thing you can deduce from Christmas is that new products — specialness — can generate business,” Gould said.

“It’s all about fine-tuning the service and fine-tuning the product mix,” said Stefani Greenfield, co-partner in Scoop, citing such products as Michael Kors leather fringe belts, priced at $155, and Seven jeans, $99 to $125, depending on the wash, as best sellers. She acknowledged “a bit” of resort and cruise orders were canceled, that the store is “very lean going into spring” and that she experienced strong Christmas business. Scoop operates five shops: in South Beach inside The Shore Club; East Hampton and Greenvale, N.Y.; 73rd Street and Third Avenue and on Spring and Broadway. Scoop is planning to open a men’s shop in July 2002 adjacent to the Third Avenue location.

Macy’s Kahn called the weekend “explosive,” adding, “Our Northeastern stores did particularly well. Customers came in the end and spent in those areas where they perceived great value. They shopped to save and were really looking at value. December will be our best performing month, post 9/11, but still disappointing to what we anticipated pre 9/11. Post-Christmas will be particularly strong. It’s supposed to turn cold so we could see another 10 days of strong business, but we’re still cautiously approaching the spring season. Our inventories are very much in line and considering the trend since Thanksgiving, we are thrilled with the last four days of business.”

Kahn said the “feel good, stay at home” businesses did best, including jewelry, intimate apparel, handbags, home textiles and housewares. Apparel did a little better, but continued to suffer from the lack of cold weather. “The most difficult business is cosmetics and fragrances,” Kahn said. “The industry is going to have figure out if it is offering enough value in value sets.”

“We were very happy with the weekend,” said Edelman, of The Bon. “For December, we’ll be OK. We’ll do a little bit better than our revised projections, but overall it’s still disappointing. It’s nice to see a strong finish, and it gets later and later every year.”

He said The Bon implemented a last 10-day strategy, which increased staffing for certain gift categories, like fragrances, watches and jewelry, kept merchandise filled in for those targeted areas, and revved up some advertising.

While the store has brought in some transitional merchandise, spring happens in earnest in the beginning of February. Edelman said some slow sellers were marked down earlier to insure fresh inventories going into spring. “We may end up with a little more gross margin than our projection.”

“The weekend was good,” said Howard Socol, chairman, president and ceo of Barneys. “Saturday and Sunday were very nice. We beat our revised plan by a point or so, coming in a few points behind last year in comp days.” He cited novelty sweaters, novelty gloves, jewelry, cashmere sweaters, and new resort goods as best sellers, as well as Seven jeans and Marc by Marc Jacob.

“Nobody was going to make their year during Christmas,” Socol said. “Everybody was hoping to have a reasonable Christmas and we had an OK Christmas.” In the last week, Barneys Beverly Hills and Chicago stores outperformed the Madison Avenue store.

At Bergdorf’s, Frasch said the weekend was good, noting that the extra day this year, with Christmas falling on a Tuesday compared to a Monday last year, made a difference. “Every bit helps. Last week was pretty decent considering everything. I hope the post-Christmas period comes in strong. It’s hard to tell. It’s been difficult this season to predict anything.” Bergdorf’s fine jewelry, handbags, men’s furnishings and accessories, women’s accessories, home products and cosmetics did well in December. “There has been some good performances on resort and early spring receipt, and we probably don’t have enough quite frankly.” He singled out Chanel, Roberto Cavalli, Yves St. Laurent, Voyage, Carlos Falchi, with Bohemian looks, peasant blouses, jeans, and prints.

Elsewhere around the country, Neiman Marcus said sales picked up at its stores across the U.S. over the previous weekend, with designer jewelry, fashion watches, denim sportswear and items, cruise apparel and boots among bestsellers. “It remains a challenging Christmas as we thought it would be. It’s still too early to tell if we’ll beat last holiday’s sales overall,” said Burt Tansky, chairman of the Neiman Marcus Group and chairman and ceo of Neiman Marcus Stores. He said Neiman’s stores in New York suburbs and units in Beverly Hills, Texas and Chicago did the best.

“Finally, people were walking the malls,” getting over the fear of terrorism, in an otherwise “awful season,” observed Dan Miele, partner in consumer business practice of Deloitte & Touche. “This is going to be a huge week on the volume side, but it’s not when retailers make money. Spring will be better than Christmas, but unfortunately [mostly] more of the same. Retailers are going to have a difficult time to get consumers” into the fall of next year. “I don’t think we’ll see a great 2002. I’m hoping to see a real good 2003.”

Promotions ranging from 30-to-80 percent off drove sales over the weekend on the West Coast, enabling stores with lowered projections to meet them. For example, Oren Hayun, principle of Planet Funk, a young contemporary chain with nine units in Southern California, had revised holiday sales downward by 10 percent. Hayun said some retailers went too far with promotions, but he found a promotion that offered customers $50 back on $250 purchases helped drive sales for his customers.

Sales of leisure wear for at home were very strong, said Hayun, as were denim bottoms, peasant tops, and novelty T-shirts. Sweaters picked up in the latter half of the season while romantic girly looks and early spring shipments of pastel items have gotten good reaction.

Mervyn’s said traffic for the weekend was “fairly busy” overall and busier in the evenings, with sweaters, fleece, holiday-themed merchandise, hats and scarves, pacing the business.

At Elder-Beerman, “it was a good weekend and pretty much on plan,” noted a company spokesperson. Bestsellers were sweaters, fashion jewelry, accessories, special sizes and sportswear.

At Nordstrom, sales were fairly brisk over the weekend, according to Pamela Perret, fashion communications director at the Seattle-based specialty chain. Luxury coats were a bright spot, especially those with fur and leather trim. Shearling and washable suedes also checked. Michael Stars’ shiny t-shirts, romantic white blouses and any blouse with a ruffle-front are moving “like jelly beans. People are grabbing them by the handful,” said Perret. “Anything denim is strong, but girls are buying it for themselves, not so much as gifts.” Sweaters, robes and slippers were popular gift items.

Jeremiah Sullivan, chairman and ceo of Macy’s West, said 32 days this season compared with 31 days last year gave the San Francisco-based retailer an extra push. “We are going to eke out a small gain for Christmas,” he said.

That, coupled with a weekend of strong traffic will show a slight increase on a comp store basis — “an abrupt turnaround from early September, October and November,” he said.

Sullivan said sales in Northern California have been consistently worse than Southern California from September through November.

“You can’t even call it a roller coaster season because it’s the entire amusement park,” he said. “It’s gone from a fun house in the early part of the month, to a parachute drop in the middle of the month. The last few days has been a rocket launch.”

Outerwear and sweaters picked up — the Ala Moana store in Hawaii was the number-one volume store in silk sweaters beating out Union Square in San Francisco; Americana sold pretty well; and sales of intimate items and sleepwear were just okay.

Fine jewelry, fragrances, and fashion watches were also popular. “We went out of our way to put extra staffing in the fashion watch counters and it really paid off for us,” said Sullivan.

“It wasn’t as dire as some people have been predicting,” he concluded. “I think we did adjust their receipts to the business. As a result our inventories are going to be in great shape. Our inventories will be below where they were last year. There won’t be a lot of heavy liquidation as we get into January and February.” – David Moin with contributions by Kristin Young, Los Angeles and Rusty Williamson, Dallas

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