U.S. store traffic sinks 21% as last-minute deals flop

Cotten Timberlake and Lindsey Rupp (c) 2013, Bloomberg News

Fewer Americans hit the malls the last week before Christmas even as retailers from Macy’s to Michael Kors Holdings poured on the discounts.

U.S. store visits plummeted 21 percent and retail sales dropped 3.1 percent in the week through Dec. 22, signaling a lackluster finish for stores’ most important selling season, Chicago-based researcher ShopperTrak said Monday.

Falling store traffic in recent weeks and uneven demand, especially for apparel, spurred chains to risk earnings by piling on the discounts to generate sales. Retailers including Neiman Marcus Group LLC were offering as much as 75 percent off, and some, including Macy’s and Kohl’s Corp., were keeping stores open around the clock starting Friday. At the same time, Americans are increasingly shopping online.

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“The numbers are a bit scaring,” Bill Martin, ShopperTrak’s co-founder, said in an interview. “This is modest growth.”

Holiday purchases increased 2 percent from Nov. 1 to Dec. 22, ShopperTrak said. Sales will rise 2.4 percent for the whole season, the smallest gain since 2009, Martin reiterated.

ShopperTrak compiles sales and traffic data from devices in stores and receipt information, primarily from mall-based sellers of general merchandise, apparel, furniture and electronics. Holiday sales grew 3 percent last year, 3.4 percent in 2011 and 4 percent in 2010, according to the firm’s measure.

Sales at retailers’ stores open at least a year climbed 2.7 percent the week ending Dec. 21 from the same period last year, the International Council of Shopping Centers said in a statement Tuesday. The ICSC, which samples data from a group of retail chain stores, projects retailers’ comparable-store sales in December will increase 3 percent to 4 percent.

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The National Retail Federation reiterated on Dec. 12 its prediction that total sales will rise 3.9 percent in November and December, more than the 3.5 percent gain a year ago.

While the U.S. economy grew at a surprising 4.1 percent annualized rate in the third quarter, the gain was driven by increased spending on services such as health care and recreation as well as companies boosting software investments.

As a result, the expansion has largely bypassed retailers such as Wal-Mart Stores Inc., which last month trimmed its profit forecast as unemployment and higher taxes kept many customers from increasing spending. A week later, Target Corp. posted third-quarter profit that fell 46 percent and forecast fourth-quarter earnings that trailed some analysts’ estimates.

Even Michael Kors’s hot namesake leather goods brand couldn’t avoid discounts. A larger portion of the company’s inventory was marked down than last year, indicating a slower- than-expected holiday season, Gabriella Santaniello, an analyst at Wedbush Securities in Los Angeles, wrote in a note to clients. The shares tumbled 3.7 percent Monday.

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Gap Inc.’s Old Navy chain on Dec. 22 started offering as much as 75 percent off throughout the store. “The After Holiday Sale Starts Today,” the chain said in a full-page ad in The Washington Post.

The promotions were the most prevalent since 2008, Craig Johnson, president of Customer Growth Partners in New Canaan, Connecticut, said in an e-mail. Without more growth in Americans’ disposable income, retailers can’t thrive during the holiday season or the rest of the year, he said. “Super Saturday,” while the biggest sales day ever with $17 billion sales, won’t be enough to help retailers, said Johnson, who uses a wider measure of retail sales than ShopperTrak.

“This has been a very difficult season,” he said in a phone interview Monday. “One terrific day can’t turn around an otherwise tepid season.”

The “heated” promotions may pressure profitability at Abercrombie, Aeropostale Inc., Francesca’s Holdings Corp., L Brands Inc. and Urban Outfitters Inc., Richard Jaffe, an apparel analyst with Stifel Financial Corp. in New York, wrote in a note to clients last week.

Target had its own challenges. After reporting that data for about 40 million debit and credit cards may have been compromised at the height of the holiday shopping season, the chain tried to lure shoppers with a 10 percent discount this past weekend. Yet the number of transactions at Target slipped 3 percent to 4 percent compared with the final weekend before Christmas last year, according to Customer Growth Partners.

Target said Monday that it was investigating the software that affected its systems with the U.S. Department of Justice and the Secret Service, which asked it not to share details of the probe. The company also said it had reached out via e-mail to 17 million shoppers and that its general counsel was conducting a call with state attorneys general to update them on the breach.

Sales in November and December account for 20 percent to 40 percent of U.S. retailers’ annual revenue and 20 percent of profit, according to the NRF, a Washington-based trade group. Consumer spending represents about 70 percent of the U.S. economy.

Not all retail sectors are faring equally. Home-improvement and furnishing chains will generate 7 percent growth in fourth- quarter same-store sales while auto retailers will see 6 percent growth and discounters 1 percent, according to the average of analysts’ estimates compiled by researcher Retail Metrics. Sales at department-store chains will fall 1 percent and they will sink 7 percent at teen-apparel chains, the Swampscott, Massachusetts-based firm said.

Estimates show luxury chains will post a 5 percent gain, smaller than last year’s 5.4 percent increase. The group monitored by Retail Metrics is made up of Coach Inc., Tiffany & Co., Kors, Williams-Sonoma Inc., Blue Nile Inc. and Zale Corp.

The Standard & Poor’s 500 Retailing Index gained 43 percent this year through Monday, compared with a 28 percent gain for the broader S&P 500.

— With assistance from Lauren Coleman-Lochner in New York.