Holiday shoppers generated a strong sales season for U.S. retailers, analysts estimate, with consumers opening their wallets amid higher wages, lower gas prices and rising employment. Yet retail stocks tumbled Thursday following a string of disappointing sales reports and news that Macy’s and Sears will close hundreds of stores. What’s going on?
Q: I heard holiday sales were strong. So why are all these retailers closing stores?
Department stores have been facing headwinds for years as they struggle with dwindling foot traffic at stores; many have resorted to margin-eating promotions to get customers through the doors. Although foot traffic got a boost just before Christmas from last-minute holiday shoppers, the one-week surge wasn’t enough to offset declines plaguing the industry.
Q: If retailers did poorly, but forecasts were strong, were the numbers wrong?
No. Mastercard SpendingPulse estimates that overall retail sales over the holiday season rose, as forecast, by 4%. But e-commerce accounted for most of the growth, jumping 19% from last year—meaning overall in-store sales were essentially flat.
“You can’t make money on flat sales,” said Richard Baum, a managing partner at Consumer Growth Partners. “Whether you’re a department store or specialty store, you just can’t do it.”
Q: Who were the biggest losers?
Macy’s Inc. and Kohl’s Corp. on Wednesday both reported disappointing holiday sales figures, and cut their earnings forecasts for the current fiscal year. Barnes & Noble Inc., L Brands Inc. and Sears Holdings Inc. followed Thursday with their own disappointing news, sending a number of retail stocks down during the day’s trading.
Consumer Growth Partners’ Mr. Baum noted that most of those companies are department stores focusing on apparel. “We know that the apparel and accessory business has been weak most of the year,” he said, adding that these segments likely lost market share this holiday season to categories such as electronics.
Q: What About Amazon?
Amazon.com Inc. has’t reported holiday sales yet, but the e-commerce giant has bucked most trends facing retailers. The company said Wednesday that shipments delivered by its Fulfillment By Amazon service grew 50% over the holiday season, delivering a record two billion items world-wide. After Black Friday, Amazon also reported having its “best-ever” shopping weekend for devices.
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