Weak Holiday Shopping Adds to Economic Fears

But there are reasons to look beyond yesterday's weak retail sales numbers.


With the recent reports of weak retail sales, here's an argument for why December may not be as important as you think.

Were holiday sales weak this year?

For the most part, yes. According to TNS Retail Forward, the December same-store sales growth of about 50 retailers weakened to 0.2 percent, down from 3.2 percent growth in December 2006. The research group found that while the same percentage of people bought presents, shoppers spent $635 on average, down $75 from last year. To some extent, the soft sales were predicted: Way back in November, the Consumer Federation of America and the Credit Union National Association said that 1 in 5 shoppers planned to spend less than in the previous year, largely because of concern over growing energy costs.

Despite tempered expectations, many retailers reported sales that were even lower than anticipated. Ann Taylor reported that its December same-store sales fell 9.4 percent, while analysts had predicted a decline of closer to 2 percent. Target reported its same-store sales fell 5 percent in December, while analysts expected only a 2.5 percent drop.

On the other hand, big discount stores, including Costco and Wal-Mart, reported stronger December sales, of 7 percent and 2.7 percent, respectively.

Why weren't people spending as much as usual?

Consumers feel squeezed by gas and energy prices, soft home values, and tighter credit markets. Numbers from Capital One and American Express released Thursday suggest more consumers are getting caught in the crunch: The credit companies reported a rise in delinquencies and slower consumer spending. But the delinquency rate (at Capital One it is just under 5 percent) is still relatively low from a historical perspective. Are there any reasons to be optimistic?

Gift cards were a big growth area this year. One study suggests gift card sales grew 25 percent, up to $35 billion. Because companies record gift card sales when recipients use them, and not when they are sold, holiday gift cards probably were not counted in the December sales numbers. We also saw holiday sales and discounts starting earlier, in some cases as far back as Halloween, and lasting longer, into January. In addition, Thanksgiving came on the early side this year, putting more big shopping days in November instead of December. Both those factors mean that holiday sales were spread into the months before and after December—another reason not to put too much weight on that month's same-store sales.