Holiday Sales Look Strong So Far -- But At What Cost?

Retailers Hit Promotions Hard Pre- and Post-Christmas; Online, Mobile Surge

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On the heels of the brisk last-minute shopping frenzy right before Christmas, shoppers were once again out in full force during the post-holiday sales rush, clearing retailer inventories by stocking up on items such as appliances, apparel and electronics.

In all, sales during the shortened holiday season appeared to have been decent, according to retail experts contacted last week, with big promotions during post-Christmas shopping helping retailers make way for spring merchandise. Like much of the pre-Christmas season, retailers had to "pound the sales button" after the holiday to get those clear shelves, said Paul Swinand, equity analyst at Morningstar.

Booz & Co. said Macy's was a holiday winner.

However, "you shouldn't take all the red out there as a complete disaster," said Mr. Swinand. "It has been a very promotional and -- as some sites and data points suggested -- it's been a tough holiday season. Everyone was banging the sale drum hard from very early on, but I'm not predicting any disasters really, despite a whole bunch of extenuating circumstances."

Bigger-ticket items
Mr. Swinand said he thinks consumers are shifting slightly during holiday to buy bigger-ticket items such as appliances, furniture and cars, in light of an economy that appears to be perking up. "The person who was out of a job or afraid of losing their job wouldn't have bought [such items] until now," he said.

Jack Kleinhenz, chief economist for the National Retail Federation, also noted consumer-spending behavior before and after holiday as it relates to the economy. "Holiday may have been a reflection of how the consumer is performing as we are getting into more of a speedier [economic] recovery," he said. Mr. Kleinhenz said he expects overall holiday sales for November and December to get close to, or perhaps even exceed, the NRF's prediction for a 3.9% year-over-year increase; the NRF will release its holiday figures in mid-January coinciding with monthly retail sales data released by the government.

Small appliances sales were also a boon for some retailers during the holiday shopping spree, said Tom Blischok, chief retail strategist at Booz & Co. "Crockpots and coffeemakers, woks, healthy cooking items also seemed to do exceptionally well," he said.

Deals drove sales at retailers like Target.
Deals drove sales at retailers like Target. Credit: Patrick T. Fallon/Bloomberg

Other strong categories, according to Mr. Blischok, included electronics, hand tools, video games, bedding, "affordable fashion" and toys. His top retailer winners include Macy's, Best Buy, Target, and Walmart. But the deals were so good, Mr. Blischok predicted, "Retailers are going to struggle this year to show year-over-year increases in [profit] margins."

Gift cards
During the week between Christmas and New Year's, gift cards drove spending. According to the International Council of Shopping Centers and Goldman Sachs' consumer tracking survey, average share of total holiday spending in the form of gift cards rose to a record of 23.7%.

"It means that the 'extended season' -- the weeks after Christmas into January -- will play an important role in the final tally of the season's performance," said Michael Niemira, VP-research at the ICSC, in a statement. The ICSC said sales for the week ended Dec. 28 rose 1%, with a year-over-year growth of 3%, the highest weekly increase in all of December.

As for shoppers in stores, retail analytics firm Euclid said traffic in December rose 8.6% year-over- year, driven by promotions. After Christmas, traffic was "robust," the firm said, "as shoppers looked to take advantage of even more attractive inventory-driven discounts." San Francisco-based Euclid measured data on 25 million domestic shopping sessions in December.

Mobile, online post big gains
"In the face of challenges including unfavorable weather and a shortened shopping season, the retailers that fared the best this holiday were the ones that invested in their omni-channel capabilities to win the competition for consumers' attention," Euclid said.

Indeed, mobile and online shopping dominated holiday sales increases, as expected. IBM Digital Analytics Benchmark said online sales for the quarter ended Dec. 31 rose 10.3%. Of all online sales, mobile reached 16.6% of the total, an increase of 46% from prior-year levels. Tablets, meanwhile, made up 11.5% of all online sales, more than twice that of smartphones.

By category, department store online sales increased 62.8%, IBM said. Apparel online sales rose 10.2% year-over-year, according to IBM, with a 54.5 % increase in apparel sales via mobile. IBM tracks transactions and data from 800 retail sites nationwide.

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