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Which Retail Segments Had The Best Christmas?

Santa was good to automobile dealers and home goods stores, but left coal in department and apparel specialty store stockings this year, according to the most recent U.S. Department of Commerce retail sales data.

Retail sales for the last two months of 2014, the period considered the holiday season, were $33.6 billion higher than in 2013, or 3.9%, slightly below the NRF’s expected 4.1%. 

Not surprisingly, gas stations saw a huge drop in sales – of $8.5 billion, to be exact, due to the plunge in gas prices and the fact that people didn’t do much extra driving as a result. Consumers did, however, elect to put their gas in new cars: Automotive retailers enjoyed a windfall of $14 billion in the two-month period, more than 40 percent of retail’s total increase.

Folks also decided to eat out more. Restaurant sales rose by more than $6.5 billion in November and December, 7 percent more than in the corresponding months of 2013.

Grocery store sales were up by $3.4 billion–not surprising given the sharply higher prices for beef, dairy and other staple products this year.

Sales in home related stores – electronics, furniture, building centers and the like – rose by a whopping $5 billion in the season. Low interest rates and the recovering job market have rebooted the housing industry, always a good thing for these retail sectors and a positive sign for the economy.

E-commerce pure-plays (i.e., Amazon) had a $5 billion increase over last year, evidence of the dramatic shift in shopping habits by American consumers. Even though gas was cheap, they took fewer trips to the mall.

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Department, chain and discount stores were down slightly compared to 2013, while apparel specialty stores saw sales rise by $1.8 billion, giving the combined sector, which represents most of apparel sales, a $1.6 billion boost, pretty low relative to other discretionary categories, but consistent with what we’ve been hearing about declining foot traffic at malls.

That $1.6 billion for the combined department and specialty sector is a small number, and not great news for apparel retailers, since it means that consumers are placing lower priority on apparel than on categories like entertainment and consumer products that are easier to buy online.

The decline in brick-and-mortar sales has put a spotlight on the fact that we have too much square footage in apparel in this country, a situation that isn’t going to change in the near term. Although a growing number of retailers (Macy’s, J.C. Penney, Aeropostale, Abercrombie) are closing underperforming stores, another group (Zara, Uniqlo, Nordstrom Rack, Urban Outfitters, to name just a few) are expanding their footprint, which has caused several apparel specialty chains to finally throw in the towel and file for bankruptcy, with more expected to follow.

As we learned in Economics 101, an overabundance of supply combined with tepid demand is a recipe for sliding prices. Consumers have become addicted to promotions and sales, and addictions are tough things to kick. Seventy percent off is the new 30 percent off. We don’t think twice about dropping $4 on a cup of coffee at Starbucks or hundreds of dollars on the latest iPhone, but won’t buy a cashmere sweater until it’s been marked down from $180 to $59, because that’s what relentless discounting has trained consumers to do. Data released Friday by the Bureau of Labor Statistics underscored the seriousness of the situation: the CPI for apparel plunged by 3.2% in December, its biggest decline in over a decade.

What are the implications of these metrics for apparel retailers and brands? Those who continue to differentiate themselves solely on the basis of price will find themselves in an unforgiving downward spiral from which it is impossible to recover. The survivors and thrivers, by contrast, will be those who understand their consumers, and who take the time and expend the energy to understand them and put them first. These brands will focus on developing unique, innovative and differentiated product. They will take a page from the entertainment industry’s book and make shopping more of an irresistible experience. They will see to it that their brands have a compelling reason for being. The cost of not doing so could be prohibitive.

Holiday 2014 Sales by Sector