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Retail sales rise 4.5% in December; merchants say discounts hurt

Major retailers such as Macy's, Target and J.C. Penney warn that steep markdowns may eat into year-end results.

January 03, 2013|By Shan Li, Los Angeles Times
  • Shoppers strolling along Colorado Boulevard in Old Town Pasadena said they controlled their spending during the holidays and planned to take a break from buying in the new year.
Shoppers strolling along Colorado Boulevard in Old Town Pasadena said… (Francine Orr, Los Angeles…)

Wary holiday shoppers forced retailers to heavily discount items during December, ultimately handing merchants decent sales but raising worries about consumer spending in the new year.

After wooing bargain hunters in December by cutting prices, major retailers such as Macy's Inc., Target Corp. and J.C. Penney Co. lowered their profit expectations for the fourth quarter, warning that steep markdowns may eat into year-end results.

Along Colorado Boulevard in Old Town Pasadena, shoppers said they controlled their budgets during the holidays and planned to take a break from spending in the new year.

"We budgeted $600 for all our family and friends, and we stuck with that," said Wendy Estrada, 33, of Pasadena. "It wasn't the right time to go over the top."

However, Estrada, an admissions officer for a culinary school, had just picked up a $65 pair of tan heels for herself, part of a post-Christmas splurge using gift cards she'd received. But after those are used up, "I'm done until Valentine's Day," she said.

In December, many shoppers were weary of spending during Black Friday sales after Thanksgiving and were focused instead on the "fiscal cliff" debate and the school shooting tragedy in Newtown, Conn., analysts said. As a result, many merchants slashed prices in a last-ditch effort to entice people through their doors.

"The surge in sales we saw was driven by a spike in promotions by retailers, which really helped salvage sales at the back end from the Saturday before Christmas up through New Year's," Ken Perkins of Retail Metrics Inc. said. "A lot of consumers were looking for value."

Major chain stores posted an overall 4.5% sales increase in December compared with the same month a year earlier, beating analysts' expectations of a 3.3% rise. according to Thomson Reuters' tally of 17 retailers.

Top performers were a mixture of high- and low-end stores. Costco Wholesale Corp. led the way with a 9% bump, while upscale department store chain Nordstrom Inc. reported an 8.6% jump. Off-price retailers Ross Stores Inc. and TJX Cos. both said sales rose 6%.

Other retailers did not fare as well. Struggling teen clothier Wet Seal Inc. said sales fell 9.7%, while action-sports retailer Zumiez Inc. reported a 1% slump. Target said sales were flat.

Results were based on sales at stores open at least a year, known as same-store sales and considered an important measure of a retailer's health because it excludes the effect of store openings and closings.

Analysts noted that some retailers sacrificed profit by aggressively marking down merchandise to draw people into stores. Strong sales did not always translate into a blockbuster holiday season.

Macy's, which reported a 4.1% jump in sales, lowered its fourth-quarter earnings guidance and separately announced that it planned to close six underperforming stores nationwide, including one on Paseo Colorado in Pasadena.

Macy's Chief Executive Terry J. Lundgren said December growth "was somewhat less than we had expected."

"It came amid significant head winds from uncertain economic news and the lingering effects of Hurricane Sandy," he said in a statement Thursday.

Kevin Mansell, chief executive of Kohl's Corp., described sales in December as "lower than planned." The chain saw a 3.4% jump.

"Sales came in late in the holiday shopping season and, as a result, were at deeper discounts than planned," he said, adding that more markdowns were planned to clear out inventory before spring.

The mixed showing during the crucial holiday season indicates that shoppers have not completely shaken off worries about the economy, industry watchers say. The last-minute maneuvering over the looming "fiscal cliff" convinced some consumers that they should hold on to their dollars.

"If even Target can't get positive sales, that shows you it's a pretty tough environment," said Britt Beemer, a retail expert at America's Research Group. "When it's all said and done, it was a pretty lackluster holiday and it was a nail-biter."

Merchants are now settling into the usual post-holiday lull, with many lowering prices even further to clear inventory and prepare for the next spike in consumer spending, typically before Easter.

Going forward, industry watchers predict that 2013 will be much like last year — a time of slow growth as the economy gradually mends and shoppers find a more stable footing with their personal finances.

For retailers, the fight will continue for more discerning and picky shoppers, said Michael Brown, a partner in the retail practice at consulting firm A.T. Kearney.

"We are not seeing a period of aggressive growth where that tide is lifting all retailers," he said. "It's going to be a highly competitive environment where retailers have got to work hard to get consumers into stores."

Browsing in Old Town Pasadena, shopper Teresa Overing, 50, was feeling confident that the economy was back on track. Overing, a Pasadena human resources manager, said there was nothing in particular brightening her outlook, just a general feeling that things are finally turning around.

"In spite of all the news, I'm more optimistic," she said. "Maybe it's the new year and the nice weather."

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