Get breaking news alerts via email

Click here to manage your alerts
In this Dec. 13, 2011 photo, Jesus Esparza, right, of Chicago, shops at the Macy's on State Street store in Chicago. Many retailers are reporting solid sales gains for December, capping a decent holiday season. (AP Photo/Charles Rex Arbogast)
Holiday discounts crimp retailers’ profits
Shopping » Despite sales uptick, some retailers cut earnings forecasts.
First Published Jan 05 2012 09:18 am • Last Updated Jan 05 2012 04:34 pm

Many retailers delivered solid sales gains for December, but heavy discounts needed to get shoppers to buy exacted a high price, clouding the holiday shopping season.

Merchants had to mark down coats and other gifts to get shoppers to buy in a challenging economy. A mild start to winter also didn’t help, wilting shoppers’ appetite for cold-weather merchandise. That resulted in a string of retailers reducing their earnings outlooks.

Join the Discussion
Post a Comment

The need for discounts is also raising concern about what it will take to get shoppers to spend again in coming months.

Retailers collectively reported a 3.5 percent increase in monthly revenue at stores open at least a year — an indicator of a merchant’s health, according to the International Council of Shopping Centers’ tally of 25 merchants.

For November and December combined, holiday sales rose 3.3 percent, a solid increase, but still behind last year’s 3.8 percent pace.

With shoppers sticking to a tight budget given high employment and paltry wage growth, there were clear winners and losers. Limited Brands Inc., Macy’s Inc. and Nordstrom Inc. posted strong revenue gains that beat analysts’ estimates. Macy’s and Limited even boosted their earnings outlooks.

In contrast, Target Corp., Kohl’s Corp., and J.C. Penney Co. cut their earnings outlooks after reporting weaker-than-expected sales.

"The holiday season was OK," said Michael P. Niemira, chief economist at the International Council of Shopping Centers. "But because of the extremely competitive environment, stores had to do whatever it took to get those sales, and that affected profits."

December’s results offer an important benchmark for retailers and economists. During the holiday shopping season, merchants can make up to 40 percent of their annual revenue. The period that runs from November through December also gives valuable insights into what it takes to get Americans to spend in the weak economy.

Clearly, the rich kept spending, but for everyone else, it took either a hot item like the iPad or a lot of "50 percent off" signs to win over shoppers. For the semi-official start of the holiday shopping season, stores opened as early as Thanksgiving Day, plying shoppers with discounts that resulted in record sales. Many also plied online shoppers with free shipping and promised to match prices with that of rivals.

story continues below
story continues below

But shoppers took a longer-than-usual breather after the early splurge. A mild winter and the fact that Christmas fell on a Sunday encouraged people to wait until the last minute.

That forced some stores to discount more than they had planned in the final days before Christmas to attract shoppers. Post-Christmas bargains were even better. Express stores, for example, promoted an "End of Season" sale, with merchandise prices reduced by up to 70 percent.

Costco Wholesale Corp.’s revenue at stores open at least a year rose 7 percent in December, narrowly missing Wall Street’s expectations.

Target posted a 1.6 percent gain in December as consumers waited until the last minute to shop and electronics sales were weak. The company lowered its fourth-quarter earnings guidance, and its stock tumbled in

The discounter has faced heightened competition from Wal-Mart Stores Inc., which brought back layaway in toys and electronics for the holiday season and is hammering its low-price message.

Wal-Mart no longer reports sales on a monthly basis.

Among department stores, business was mixed.

More expensive stores enjoyed a strong season, as the wealthy shrugged off volatile swings in the stock market. Nordstrom had an 8.7 percent increase in revenue at stores opened at least a year. That was above the 5.1 percent forecast. Saks Inc., which operates Saks Fifth Avenue, posted a 5.8 percent increase, meeting Wall Street estimates.

Macy’s benefited from its efforts to tailor merchandise to local markets. It posted a 6.2 percent increase in December. The results beat Wall Street’s estimate of 5 percent. For November and December combined, revenue at stores opened for a year rose 5.7 percent.

But J.C. Penney Co. and Kohl’s Corp., both of which target middle income shoppers, had a more challenging season. Kohl’s posted a 0.1 percent decline, well below Wall Street’s 2.2 percent estimate.

"Our December sales results were short of our expectations although much improved over November’s results," said Kevin Mansell, Kohl’s chairman, president and chief executive officer in a statement.

Next Page >

Copyright 2014 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Top Reader Comments Read All Comments Post a Comment
Click here to read all comments   Click here to post a comment

About Reader Comments

Reader comments on sltrib.com are the opinions of the writer, not The Salt Lake Tribune. We will delete comments containing obscenities, personal attacks and inappropriate or offensive remarks. Flagrant or repeat violators will be banned. If you see an objectionable comment, please alert us by clicking the arrow on the upper right side of the comment and selecting "Flag comment as inappropriate". If you've recently registered with Disqus or aren't seeing your comments immediately, you may need to verify your email address. To do so, visit disqus.com/account.
See more about comments here.
Staying Connected
Contests and Promotions
  • Search Obituaries
  • Place an Obituary

  • Search Cars
  • Search Homes
  • Search Jobs
  • Search Marketplace
  • Search Legal Notices

  • Other Services
  • Advertise With Us
  • Subscribe to the Newspaper
  • Access your e-Edition
  • Frequently Asked Questions
  • Contact a newsroom staff member
  • Access the Trib Archives
  • Privacy Policy
  • Missing your paper? Need to place your paper on vacation hold? For this and any other subscription related needs, click here or call 801.204.6100.