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Retailers Need Strong Post-Christmas Sales

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Retailers are betting on a strong post-Christmas selling time to save them from a disappointing holiday season. Data so far shows that holiday sales were up a dismal 0.7% over last year – the slowest rate of increase since 2008. Growth in online spending also slowed to 8.7%.

Executives noted that sales peaked on Black Friday and on the weekend before Christmas, but the shopping lull in between was unusually long and soft. Many executives are confident that the year will end strong, but are still unsure what the exact numbers will be – a rarity, this late in the year.

Some retailers have noted a shift from the standard boom and bust retail cycle to patterns of more sustained spending by consumers. People are now shopping online year round for holiday presents, meaning retailers can no longer count on a November – December spike to bring profitability to their stores.

Fallout from Hurricane Sandy and uncertainty around the fiscal cliff may have contributed to the slowdown, which was also reflected in the stocks of consumer discretionary companies. According to David Schick of Stifel Nicolaus & Co., retail underperformed the market by about 5% in December.

Savvy and more internet oriented consumers also may have hit sales, as people comparison shopped online for best prices and sometimes avoided physical stores altogether. According to RetailNext, store traffic is down 16.5% compared to 2011 and net sales are down 5.8% for the season.

But brands and retailers need a strong close to 2012 and are counting on returns, gift cards, and sales to do it. Some companies are pushing consumers to spend now on lifestyle items, in order to get their 2013 resolutions underway.

Other retailers were open early on Wednesday, pushing Christmas clearance sales of up to 80%, including at higher end chains such as Bloomingdales and Saks. Comparable store gains are expected to average around 3%.

Revenue and inventory problems may spill over into spring 2013, sparking revisions in first half estimates as consumers, particularly in the luxury sector, batten down the hatches in preparation for tax increases. People are bringing in new products sooner to try and capture consumer spending before cuts take effect.

Overall, industry groups are expecting 2013 to be a good year for retailers and for the US economy. Bright spots so far have included winter coats, specialty items, and jewelry. Boots have also done well, along with gift cards. Consumers have been very responsive to discounting strategies this year, which have kept traffic up but may be negatively impacting bottom lines.

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