Holiday sales -- great for bargain hunters, so-so for retailers
All prices slashed! Up to 50 percent off! Sale extended for two more days! Major retailers had hoped they would not have to plaster banner messages like these across store fronts in the last few days before Christmas. But when it looked as though the last week of the holiday selling season might be as slow as the first two, retailers had no choice.
Consumers, of course, were delighted and showed it by handing over their greenbacks -- but not enough to make the retailers happy. Christmas sales reported by the major department stores at the end of last week were below earlier expectations of many in the industry. While the figures show respectable increases, the heavy price cutting will eat into profits, analysts and retailers agree.
The problem was in planning, explains Milton Schlein, a retail analyst at Value Line Investment Survey in New York. ``It doesn't make a difference if revenues are less one year than another,'' he said, if you plan for it. But the industry overcalculated demand, and so it overbought and overhired, thus increasing costs.
The holiday period was ``the most competitive environment in retail history,'' said Edward Telling, chief executive officer of Sears, Roebuck & Co., the nation's largest retailer. Sales at Sears for the five weeks ended Dec. 29 increased by 4.7 percent compared with a year earlier, when sales jumped a nice, fat 17.5 percent.
``It was not a great Christmas, but it was OK,'' said Fred Wintzer, a retail analyst at Shearson Lehman/American Express, the New York securities firm. Inventories, he guesses, ``are still high.''
This is an ideal condition for bargain hunters -- now America's mainstream buyer and a major reason why retailers have stepped up promotions year round.
``There will be plenty of bargains in January,'' says Duncan Muir, a J. C. Penney spokesman. Christmas sales at J. C. Penney, the third-largest US retailer, rose 6.8 percent. Back in the fall, Mr. Muir says, the industry was planning for a 9 or 10 percent increase.
Now that Christmas is over, however, Muir implies that his company is relieved at even the moderate increase. Christmas sales are bread and butter for retailers, accounting for as much as 50 percent of profits.
``If you look at what happened in early December, it's not disappointing,'' Muir adds. At the start of last month, shoppers were simply turned off by store hopping. Be it football playoffs, a slowing economy, or warmer weather in many parts of the country, consumers were not buying the way retailers had hoped. It wasn't until a last-minute decision to extend a Friday sale through the Monday before Christmas that Penney could rustle up a customer stampede. The story was similar at other chains, where last-minute shoppers saved the day.
Not all the major retailers had only single-digit increases in sales, though. K mart, No. 2, far outdistanced its competitors with a five-week gain of 17 percent, from $3.06 billion to $3.59 billion. K mart has spent the last year refurbishing its stores with new and upgraded product lines. K mart chairman Bernard Fauber believes the chain can achieve double-digit gains again in 1985.
Soaring revenues, however, don't mean automatic improvement in the bottom line. Even though Dayton Hudson, the fifth-largest retailer, rang up a 15.8 percent sales increase, profits won't look so good.
``Because of extreme promotion,'' company spokesman Thomas Langenfeld says, ``we know that department-store operating profit is going to be hurt.'' Meanwhile, he doesn't foresee ``any real change in the promotional climate in the near term.''
``At best, it will be a flat fourth quarter'' for industry profits, confirms Value Line's Mr. Schlein. Other analysts predict a down quarter with one suggesting profits will be off by 5 percent.