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Better Planning, Last-Minute Markdowns Boosted Holiday Sales

December Sales Bounced Back Despite Setbacks

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Last-minute discounts may have saved the holiday season for retailers.

Credit: Sam Gallup

Retailers lured reluctant shoppers with late-December specials after Hurricane Sandy, the presidential election and the school shooting in Newtown, Conn., tempered earlier holiday spending.

Retailers adapted inventories in anticipation that shoppers would slow purchases amid concern over tax increases from the now-concluded fiscal cliff negotiations, said Pamela Quintiliano, a retail analyst at Oppenheimer & Co.

"Expectations were so incredibly low," Ms. Quintiliano, who is based in New York, said today in a telephone interview. "It's not that things are robust, it's just a little bit better than what people had anticipated."

"In our store visits, we did not see overly heavy inventories on the floor or what we would judge as excessive markdowns," Mike Baker, a Boston-based analyst at Deutsche Bank AG, wrote in a report.

Better inventory control likely helped retailers notch higher profits, despite slower sales growth than in recent years. The markdowns this year were largely planned ones -- vs. the unplanned ones that result when retailers slash prices due to unexpectedly high levels of inventory. There were last-minute unplanned markdowns this year, though they weren't as aggressive as they have been in past years.

December same-store sales for the more than 20 companies tracked by Swampscott, Mass.-based Retail Metrics rose 4.8%, excluding drugstores, beating the estimate for a 3.4% gain, the firm said in a report today. That follows a 1.6% gain in November.

Sales at Macy's rose 4%, while Kohl's reported a 3% rise and Target 's same-store sales were flat. Nordstrom shined, posting a 9% rise in same-store sales. Gap Inc. posted a 5% gain, while Gap brand, which is in the midst of a turnaround effort, reported a 2% rise in North America same-store sales. It's only the second time since 2004 that Gap has managed to grow sales in December.

Still, despite an upbeat December, industry analysts have expressed caution on the overall holiday season. In the days before Christmas, ShopperTrak, which tracks retail foot traffic, trimmed its forecast to growth of 2.5% from 3.3%. At the time, the firm cited heavily discounted merchandise and the impact of Hurricane Sandy.

"Following a strong back-to-school selling period and with 32 days between Thanksgiving and Christmas [two more than last year], expectations were arguably high heading into the holiday selling period," Charles Grom, an analyst with Deutsche Bank, wrote in a report. "However, a plethora of negative news has weighed on consumers psyche -- led mostly, in our view, by the constant back-in-forth in Washington and the fear, and now likelihood, that disposable income will be reduced in 2013 and beyond. In other words, the consumer has become frozen, in our view, and what's interesting is this fear spans just about every income demographic in our coverage group."

Other industry groups, including the International Council of Shopping Centers and the National Retail Federation, have maintained their forecasts of 3% growth and 4.1% growth, respectively. Both forecasts would mean slower growth than a year ago. The U.S. Department of Commerce will report December sales on January 15.

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With contributions from Bloomberg News

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