Cash registers rung up no cheer for retailers
Various figures indicate sales didn’t meet forecasts; experts cite weather and discounting
Despite higher employment rates and lower gas prices, retail sales fell short of forecasts for the holiday shopping season, stumping experts.
Retail sales fell short of forecasts this holiday shopping season as rising employment nationally and low gasoline prices failed to pry open wallets as much as anticipated.
Stumped industry groups and analysts who study Americans’ spending speculate on causes range from unseasonably warm weather that dampened apparel sales to a widely felt pressure to discount a range of gift items at the expense of higher profits.
Those observers had predicted relatively rosy growth in the 3.3 to 4.2 percent range, but data now coming in paint a paler picture.
The U.S. Commerce Department says preliminary figures show retail sales, excluding autos, rose just 1.2 percent from a year earlier and actually fell 0.1 percent from November to December. The National Retail Federation pegs holiday sales increase at 3 percent, to $626.1 billion, short of its 3.7 percent forecast.
“Nationally, I’m surprised they were below expectations, in the sense that the U.S. economy appears to have turned the corner on the recession,” said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s C.T. Bauer College of Business.
Sales tax figures reflecting holiday sales in Houston and across Texas won’t be available until February. Through the third quarter of 2015, “the consumer seemed to be holding up fine,” Gilmer said.
But Ed Wulfe, a longtime local developer and chairman and CEO of Wulfe & Co., said anecdotal evidence suggests retailers here, too, failed to meet expectations. Projections that local retail would also be in the 3 to 4 percent range “were off very, very slightly, and there are examples of those that did better and those that didn’t do as well,” he said.
Local spirits may have been dampened by the collapse in crude-oil prices that have led to layoffs in the energy industry and is being blamed for declines hitting real estate, commercial air travel
and auto sales.
“We’re slightly worried about oil because my husband builds trucks” for the industry, Kyna Batterson said this week, while shopping at a Gap store where sales signs plaster the walls. She says her family, especially with a daughter who just started college, probably spent a little less during the holidays.
Another group acknowledging its forecast fell short of predictions is the International Council of Shopping Centers. Spokesman Jesse Tron cited the government figures as well as its own post-Christmas consumer survey.
Tron said the group couldn’t account for warm December weather when it predicted 3.3 percent growth when making its forecast in late September. Retailers headed into the busy holiday months with excess apparel inventory that they discounted deeply to get off the shelves.
Even if stores sold the same number of goods, the lower prices of each brought down overall sales numbers.
Lower commodity prices meant lower merchandise prices and helped retailers preserve some of their margins while they discounted clothes.
“It became more of a pricing story this year,” Tron said. “Retailers were cutting their prices and able to cut their prices while maintaining decent margins because the price of goods went down.”
Some bright spots, Tron said, were toys and home furnishings.
ICSC data also show one-fifth of holiday spending was in gift cards, which aren’t reported as sales until shoppers redeem them. In recent years, that has boosted January and February sales figures, Tron said.
A surge in online retail, particularly involving mobile devices, may have caught some retailers offguard, said Doug Hart, a partner with BDO USA.
“I think they knew it was coming, but I think they underestimated how much it would cannibalize in-store traffic,” Hart said. Some estimates show in-store traffic was down by as much as 6 percent, he said.
BDO projected a 4.2 percent increase based on surveys from retailers’ chief marketing officers ahead of the holidays.
Hart said the firm’s preliminary analysis shows growth was closer to 3 percent.
Even with the surge in online shopping, in-store sales still account for the majority of sales. Hart said many retailers were counting on their in-store business to increase.
Consumers also got started on their shopping earlier this year, stretching out the season and making a more steady couple of months, with less dramatic spikes on big shopping days or towards the end of the season.
Predicting a holiday retail season’s performance is far from an exact science. The prognosticators say that though they missed nailing this one, they found lessons for retailers to heed through 2016 and beyond.
For 2016, the big factors are macroeconomic, Hart said. The stock market is off to a dismal start, oil prices are depressed and China’s woes continue to contribute to global economic jitters, he said.
Regionally, oil woes will begin seeping into retail sales as lingering momentum from the shale boom wanes, Gilmer said.
“If you look across Houston, most people will tell you they haven’t felt the bust yet,” Gilmer said. “This is the year I think it actually begins to catch up with us.”
Lance McWilliams, 54, is bracing for it. He stopped by Sur La Table on Thursday after seeing a sale sign in the window.
His company supplies materials to retail builders, and news of layoffs in the energy sector were making him feel uneasy about the economy.
“If the predictions of what we’re hearing for this year are true, it’s going to be a tough year,” McWilliams said.
Retailers will need to keep an even closer eye on operations, Hart said, investing in mobile technology, fine-tuning shopping experiences and measuring how well their brickand-mortar stores align with digital-leaning consumers.
Some stores have announced more drastic changes. Macy’s, after reporting November and December store sales were down 4.7 percent even as digital sales grew 25 percent, recently announced it would close 40 stores.
Wulfe, the Houston developer, said retailers who have figured out how to balance in-store and online sales did better last year than those who are lag in reaching customers online and via smartphones.
He also sees an opening this year for discount stores such as Nordstrom Rack.
“The growth today in retail is online and off-price,” he said.