No Relief from the Christmas Gloom for Retailers

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Mark Lennihan / AP

Shoppers look for a taxi after hunting for gifts at Toys R Us in New York's Times Square early Tuesday morning, Dec. 23, 2008.

Usually in the hours before Christmas, the nation's stores are overwhelmed with harried shoppers buying last-minute gifts: books and pearl necklaces and even Uggs, those ubiquitous suede boots. On Tuesday, however, New Orleans' largest shopping mall was eerily empty. There was hardly a soul inside Saks Fifth Avenue to sniff fragrances or poke at the $95 stripped ties at nearby Brooks Brothers. Even the super-sized signs promising 75% discounts failed to lure customers into another upscale men's boutique up the street.

"I've got to watch my pennies," says Valda Blackmoore, a 27-year-old hotel manager, who isn't spending much time in stores this Christmas season. In fact, the self-described impulsive shopper is limiting her gifts to two items: a protective sleeve for her boyfriend's iPhone, and a home-baked Caribbean rum cake for her mother. (See pictures of the recession of 1958.)

Anecdotal evidence of a bleak Christmas shopping season are starting to be confirmed by hard numbers. On Wednesday, the Commerce Department reported that consumer spending in November declined 0.6% from an already weak October. Disposable personal income, a gauge of how much money consumers have after the bills are paid, also declined in November, albeit a slight 0.1%.

What's more, a hoped-for uptick in sales on the final weekend before Christmas does not appear to be materializing. Along with the sputtering economy, heavy winter weather across much of the nation played a big role in keeping people home. ShopperTrak, which measures sales and traffic at more than 50,000 stores, reports that the number of customers in stores last weekend fell 17% from last year — while total sales showed a tiny gain of 0.5%.

"This has been an uncharacteristically quiet last surge week before the holiday," says Marshal Cohen, chief industry analyst at the market research firm NPD Group. "Usually, this week is money in the bank for the retailer, because they can count on the consumer that has waited until the last minute or the person that has added extra people to their shopping list. Not so this time. This has probably been the most challenging holiday many of these retailers have seen."

Another retail group, the International Council of Shopping Centers, reported on Tuesday that same-store sales in November and December may drop as much as 2%. That is more than the previously projected 1% decline and would make this the worst Christmas sales season since 1969.

Amid the gravest economic and financial crisis in decades, the outlook for Christmas was never very bright. Some 54% of Americans polled by market-research firm TNS Retail Forward said they planned to spend less money on Christmas gifts this month than they did one year ago. The pullback is not just hitting middle market retailers, such as Dillards and Macys, but upscale stores like Saks Fifth Ave and Nordstrom as well. Saks, for example, saw same-stores sales decline 11.5% in the third quarter, followed by a 5.2% decrease in November.

Frank Badillo, an economist at TNS Retail Forward, had projected December sales at some stores to rise slightly, by 1.5%, from the previous year. Now, he expects sales to rise only between .5% and 1%. "In some ways," he says, "the current situation is even worse than 1990."

Now retailers may have to pin their hopes on the week after Christmas, when shoppers typically return gifts, redeem gift cards and look for post-holiday discounts. Lots of leftover product in stores and even deeper discounts, analysts say, could provide a year-end boost. Still, it will not be enough to save a bleak 2008 for most retailers. "For many stores, there is no first, second, or third quarter — 25 to 30% of their volume comes from the back-end of the year," says NPD's Cohen. "There is no second chance. You wait the whole year for the holiday. If the holiday doesn't emerge, it's over."

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