For Many, Holiday Sales Only Cheery by Comparison

Retailers Expecting Up to 3% Growth Since 2008, Which Was Toughest Christmas in 40 Years

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NEW YORK ( -- Reports from this year's holiday season have been particularly rosy, as has much of the news coverage. Retailers, many are saying, have managed to defy the recession during the holidays and post relatively strong holiday results. But the key word is relative. Sure, same-store sales look pretty bright -- when they are compared to 2008, which was the worst holiday season in 40 years.

Take Saks Fifth Avenue for example, which posted an impressive 10% increase in same-store sales. But when looking at December 2008's 20% same-store sales drop, the luxury retailer's figures this year look decidedly less exciting. The story was the same across the board: Macy's sales rose 1% compared to a 4% drop a year ago, and American Eagle rose 7% compared to a 17% dive a year ago.

So while retailers are breathing a sigh of relief, having beat dire predictions of another grim holiday season, it's not quite time to celebrate. "The saving grace for most retailers remains low expectations and easy comparisons; we remain worried about rising inventories and expectations for 2010," said Eric Beder, an analyst with Brean Murray Carret & Co.

Still, retailers should be given credit for approaching the holiday season better prepared to deal with frugal consumers and a more-promotional environment than they were a year ago. Well-managed inventories and promotions helped to avoid the fire sales of last year and will boost profits, even though sales were relatively modest when compared to pre-recession levels.

Thomson Reuters, which tracks monthly same-store sales for 30 retailers, reported that December sales rose 2.9%. Retail Forward, meanwhile, reported a 3% rise for its composite of 32 retailers. The International Council of Shopping Centers cites a 2.8% increase in December same-store sales, paired with a 1.8% increase for the combined November-December period. All results exclude Walmart, whose performance over holiday 2008 buoyed an otherwise dismal retail category. But its impact on retail isn't immediately apparent; in May the mega-marketer stopped reporting monthly same-store sales.

Sign of hope
Final sales results using Department of Commerce data will be available next week. In all likelihood, those figures will put actual dollar sales at just below 2007 levels, when the recession officially began. That news, which probably does sound pretty good to recession-weary retailers, has given some hope that consumer spending could begin to rebound.

"The trend through the holidays is now pretty clear that shoppers are moving toward stronger spending in 2010," said Frank Badillo, senior economist at Retail Forward. "But it's also clear that some cautiousness will persist and that spending will remain uneven across categories and retailers."

Some retailers are managing to gain market share in this environment, thanks to smart marketing plans and desirable products. Kohl's, for example, has been a bright spot and again outperformed its peers, posting a 5% increase in same-store sales in December, after being down just 1% in Dec. 2008. The retailer came out swinging in late October, saying that it would ramp up its radio, digital media and direct-mail marketing programs for the holidays, and the strategy paid off.

Gap also stood out for its improved performance. The retailer's return to TV, after a two-year absence, proved successful, and Gap's North America stores returned to positive same-store sales for the first time since November 2007 as sales rose 1% compared to a 12% decline a year ago. The "Cheer Factory" campaign was created by Crispin Porter & Bogusky, which has also had recent success with sibling brand Old Navy. Following the launch of that brand's "Supermodelquin" campaign, sales began to rebound. For December, Old Navy's sales rose 7%. Banana Republic continues to be a drag on the company, however, with sales falling 3%.

Macy's managed modest growth this season, with same-store sales in December increasing 1%, even as sales for the combined November and December period dropped 1.5%. The retailer recycled its "Believe" campaign from a year ago, updating it with new elements.

Lackluster ads
JCPenney, meanwhile, failed to entice consumers, and same-store sales fell 4%, lagging competitors. Its ads also failed to grab consumers' attention, falling out of the top 10 holiday commercials list compiled by the Retail Advertising and Marketing Association, a division of NRF.

Target's same-store sales increased 2%, despite marketing that wasn't as popular with consumers as years past. The cheap chic retailer had dominated RAMA's holiday commercial survey, taking the top slot for the past three years. But this year, it only garnered 16% of the vote, compared to 26% for Walmart.

Sears Holdings said that Kmart sales rose 5% in December, while at Sears domestic stores, sales declined 4%. Limited Brands, the parent of Victoria's Secret and Bath & Body Works, saw sales decline 2%. And teen retailers were mixed, with Hot Topic posting an 11% decline and sales at Abercrombie & Fitch plummeting 19%. Aeropostale and American Eagle fared better, reporting sales increases of 10% and 7%, respectively. Luxury retailers showed signs of life, with Saks reporting a 10% sales increase, Neiman Marcus posting a 4.5% increase and Nordstrom reporting a 7% increase.

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