
Traffic data suggests December retail sales might not have been merry and bright, signaling potential trouble for merchants’ fourth-quarter margins as well as darkening clouds on the consumer spending front.
Sales for the week ended Dec. 27 were up just 0.1 percent, and that just happens to have been the best week for the entire month. A U.S. retail traffic roundup from Cowen & Co. shows footfall in the first week in December dipped 3.9 percent. Traffic slowed even further in subsequent weeks, dropping 9.0 percent and 10.7 percent for weeks two and three, respectively.
Despite promotions post-Christmas, and given lackluster traffic trends, “holiday sales may come in a touch light of retailers’ expectations,” Morgan Stanley equity analyst Kimberly Greenberger said.
The analyst’s store checks indicates more promotions than clearance sales. Although e-commerce strength may partially offset in-store holiday sales shortcomings, “our biggest concern across our coverage universe remain [fourth quarter] gross margin deterioration, as January is historically the month with the most margin risk,” Greenberger said.
Because inventory levels had been elevated, and warmer weather dampened demand for seasonal apparel sales, Greenberger believes retailers could increase promotion and clearance levels in the coming weeks to clear out seasonal inventory. Doing so could come at the “expense of [fourth quarter] gross margin,” she said.
And while traffic at the mall could have been better, December’s retail sales could be down for other reasons as well, like falling consumer goods imports. Since August, imports declined 10.5 percent.
“Domestic production of consumer goods is also falling amidst a modest rise in retail inventories,” UBS economist Seth Carpenter said.
While U.S. consumers can’t buy goods that aren’t available, the fall in imports of consumers goods without U.S. firms ramping up production indicates the industry should reconsider the “near-term pace of consumption,” Carpenter said, revising his forecast for December core retail sales to a negative 0.15 percent from a positive 0.25 percent.