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Retail Sales Post Modest Increase for December Due to Discounted Inventory

Value-conscious consumers beat a path to retailers offering the biggest inventory discounts through the month of December, 2012, leaving some stores that couldn’t compete with weaker sales for the month.

With personal financial woes to contend with, the so-called fiscal cliff looming, the physical and psychological damage caused by Hurricane Sandy still festering and the
horror of the Newtown, Conn., killings still in the news, consumers seemed disinclined to spend with their usual Christmas season exuberance.

Still, sales increased by 3.4 percent over December 2010, according to Thomson Reuters, barely beating analysts’ estimates of a 3.3 percent increase. But the rise was attributed to retailers steeply marking down inventory to clear stocks by Christmas.

Despite generally spotty sales, many apparel stores did well, cutting prices throughout the month and posting an increase of 7.2 percent at stores open at least one year.

Gap Inc, however, which includes Old Navy and Banana Republic got hit with a 4 percent decline in same store sales.

So while sales may have increased, profit margins likely declined as a result of the heavy discounts.

“I really worry about what everyone’s margins will look like in the fourth quarter,” said Citi retail analyst Deborah Weinswig. “Luxury really struggled.”

Nordstrom Inc, however, posted an 8.6 percent comparable store increase, among the top increases of December. Although “Nordstrom never discounts,” said Weinswig, the high-end retailer’s sales spike was attributed to “unplanned discounts.”

Ten days before Christmas Nordstrom discounted Ugg boots by 50 percent and certain designer apparel discounted by 60 percent, according to Weinswig.

With sales limping along feebly, retailers were hyping deals like, “‘ 50 percent off our whole store,’ 60 percent off our whole store,’ which is when you can see times are tough,” said David L. Bassuk, managing director and head of the retail practice at AlixPartners consulting.

Bassuk forecast an eventual retail shakeout. “There’s not enough room for all the retailers of old,” he said. Stores and retailers will be closing, he predicted. “It’s a more dire situation than many had anticipated.”

Keywords: December retail sales, apparel sales, discounts, markdowns, high-end retailers, Nordstrom’s, Gap, Old Navy, Banana Republic, same store sales, comparable store sales, profit margins.