Dismal December Spells More Trouble for Retail

NEW YORK — When even Wal-Mart Stores Inc. falls short of expectations, the depth of the consumer slowdown can no longer be denied.

Such was the case in December, a month in which same-store sales, to the dismay of just about everyone, came in for retailers just as advertised — a fitting coda for the toughest holiday season in more than a generation.

Department stores were hit particularly hard, with high-end stores such as Neiman Marcus and Saks hit hardest of all. While revenue results and month-end inventory levels were in some cases a bit better than anticipated, these sources of solace came at the expense of margins, auguring ominously for fourth-quarter and year-end earnings.

Wal-Mart not only fell short of comparable- store expectations, posting a 1.7 percent advance in its U.S. stores, excluding fuel, versus expectations of a 2.8 percent pickup, but concern about the performance of its Sam’s Club stores and international operations, coupled with the recent settlement of 63 class-action lawsuits, led it to reduce its fourth-quarter earnings guidance.

Across-the-board promotions that began as early as October couldn’t save Christmas for most retailers this year, as consumers pinched pennies and curtailed holiday shopping in the face of frightening financial and job data.

“Even with all the discounting, retailers didn’t see that pop because everyone was doing it,” said Stephen Hoch, Wharton School marketing professor and director of the Baker Retailing Initiative, explaining why even mass merchants such as Wal-Mart were seeing a comp slowdown. “The discounting all canceled itself out.”

With discounts deeper and time to shop for the holidays running out, December did represent a slight improvement over November’s dismal results, said Frank Badillo, senior economist at TNS Retail Forward. “It’s encouraging that most retailers saw some improvement in their numbers compared with November,” he said. “These results provide signs that retail weakness may be bottoming out.”

That provided little consolation for better stores, though. Neiman Marcus Inc. had the worst results of all the retailers, with comps down 27.5 percent during the month. Saks Inc. and Nordstrom Inc. declined 19.8 and 10.6, respectively.

“The consumer is trading down, away from luxury,” said Matthew Katz, managing director at Alix Partners LLC. “The top tier had further to fall because they had such high gains in previous years.”

At Saks Fifth Avenue, women’s shoes were cited as one of the weaker categories, along with women’s and men’s apparel and handbags, among others.

Carla Casella, managing director of high yield research at J.P. Morgan, pointed to Neiman’s “miss” as “driven by slightly less promotional activity.” She added that the retailer is “less of a holiday destination than its lower-end peers,” but said its liquidity is “solid” and expects the company to build on its cash during the quarter.

The strongest performer among the department stores was Kohl’s Corp., which posted a 1.4 percent same-store sales dip, a byproduct of last-minute pre-Christmas shopping and purchases made after the holiday, according to Kevin Mansell, president and CEO of the off-price chain.

Bakers Footwear Group Inc., one of the few footwear-specific retailers reporting same-store sales, was one bright spot during the quarter. The retailer said comps for the five-week period ended Jan. 3 increased 3.4 percent, versus a decrease of 7.4 percent in the year-ago period.

“During the month, our assortments resonated well across our footwear categories,” said Bakers Chairman and CEO Peter Edison. “As we look ahead, we anticipate our positive comparable-store sales trends to continue, especially given favorable early spring receipt trends.”

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