December, Holiday Retail Sales: Macy's Among Strong Performers; Mild Weather Hurts Retailers

Retailers posted strong sales numbers in December, but at-times extreme discounts tapered good feelings, profits and earnings outlooks for the full year.

Stores used discounts to entice shoppers during the vital holiday shopping season, which led to record-setting days. But those deep discounts also led to missed expectations and left analysts wondering if such discounts will continue to be needed to get shoppers to stores.

According to a survey of 25 retailers by the International Council of Shopping Centers, chain-store sales rose by 3.5 percent for stores open at least one year. For the holiday period that spans November and December, sales grew 3.3 percent. That fell short of last year's 3.8 percent sales growth.

Performance was very uneven by retailer, said Michael P. Niemira, vice president of research and chief economist for ICSC. But that had been the standard for most of 2011. It has been very uneven. The retailers that pulled it off are the ones that did well for much of 2011, and vice versa.

That unevenness was represented in the form of strong sales for some and disappointing Decembers for other retailers. The ICSC said that big companies like Macy's (6.2 percent), Limited Brands (7 percent) Saks (5.8 percent) and Costco (6 percent) posted impressive gains. But there was a long line of chains falling short: Kmart, Sears, Gap (down 4 percent), JC Penney (up just 0.3 percent) and Kohl's (down 0.1 percent).

That was due to a couple of reasons. Chief were complaints from numerous retailers that a mild start to the winter affected much of the traditional merchandise shoppers purchase.

Sales in areas such as heaters, softlines, automotive and healthcare products reduced overall comparable-store sales ... as customers typically purchase these products as needed, said Bruce Efird, CEO of discount retailer Fred's, which saw a sales decline of 0.4 percent in December.

Niemira said the mild weather also affected other retailers in areas such as clothing sales, as winter jackets didn't come off shelves at normal rates. He said the weather was the main factor in eliciting the higher volume of discounts than normal.

Though some analysts worried about whether stores will continue to use such heavy discounts, Niemira doesn't see that continuing if the weather becomes more seasonably normal over the remaining winter months. But he said retailers will have to adjust for similar possibilities in future holiday seasons, which can account for as much as 40 percent of yearly sales.

The discounting triggered because of weather and heavier inventory is a passing thing, Niemira said. Retailers will not build to the same degree their inventories because of this experience.

But from a strategy standpoint, the industry has to be more mindful of weather. More retailers complained about the weather. There are now longer-range weather projections available. It's something they have to consider.

Indeed, Kohl's CEO Kevin Mansell, who saw his company's sales decrease 1.1 percent and lowered its financial outlook, said the company has taken action to ensure ... inventories are at an appropriate level.

The other reason, explained by Stage Stores CEO Andy Hall, was the negative promotional business environment that lasted from Thanksgiving through December. Stage Stores reported same-store sales growth of 1.2 percent in December.

On the other end of the spectrum, Macy's was a banner performer of the holiday retail season, reporting a 6.2 percent increase in same-store sales as others either decreased or missed expectations. Macy's increased its earnings forecast for the full year.

December sales continued very strong at Macy's and Bloomingdale's, and we are solidly on track to exceed our expectations for same-store sales in the fourth quarter, said Terry J. Lundgren, Macy's CEO, chairman and president.

Our ongoing success reflects our exceptionally talented organization, which has implemented our key strategies at a very high level in spite of weak macroeconomic conditions.

Niemira said the holiday season was a microcosm of 2011 -- full of inconsistency. And it's going to take some help to turn that into consistency moving forward.

Without some real stronger support from economy, the industry is playing a game of market-share swapping more than anything else, he said. If the economy starts showing more improvement and starts showing stronger employment numbers consistently, that will be a good sign for retailers.