December increase seals strong holiday for retail

Retailers sealed their strongest holiday sales increase since 2006, as a robust November more than offset spending that tapered off in December.

Retailers sealed their strongest holiday sales increase since 2006, as a robust November more than offset spending that tapered off in December.

The results reported Thursday suggest steadily improving consumer spending. For investors, whose expectations were riding high, the December figures were disappointing.

From Oct. 31-Jan. 1, holiday revenue at stores open at least a year rose 3.8 percent over last year, according to an index compiled by the International Council of Shopping Centers. The figure is the biggest increase since 2006, when it rose 4.4 percent.

The index tailed off to a 3.1 percent increase in December after a 5.4 percent rise in November.

A blizzard took a bite out of sales in the week after Christmas. Early holiday discounts, which started in October, had shoppers finishing more of their shopping before the December rush.

"The overall season was good, but the strength came from the beginning of the season," said Michael P. Niemira, chief economist at International Council of Shopping Centers. "This is kind of a wake-up call. It's back to reality."

December's spending is in line with a 3.3 percent growth rate averaged for the calendar 2010 year. Niemira says he's confident that growth rate should continue in 2011 as long as the job market keeps improving.

"What really has to kick in is the employment story to keep the momentum going," Niemira said. A government jobs report due Friday is expected to show the unemployment rate dipped to 9.7 percent in December from 9.8 percent in November.

Spending is a bright spot compared with 2009, when the index recorded a 0.9 percent dip. The figures are based on revenue at stores open at least a year and are considered a key indicator of a retailer's health.

For December, many retailers including Target Corp., Costco Wholesale Corp. and Macy's Inc. reported gains below Wall Street expectations. Bon-Ton Stores Inc.'s sales were virtually flat. Company officials blamed the severe snowstorms.

Among the winners was Abercrombie & Fitch Co., which saw robust gains that beat Wall Street estimates. Luxury stores, including Saks Inc. and Nordstrom Inc., also showed big increases as the rallying stock market kept affluent customers spending.

Earlier data from MasterCard Advisors' SpendingPulse and anecdotal evidence pointed to a strong December, which may have led expectations for retailers to overheat.

The holiday 2010 had few nail-biting moments. Discounting on holiday goods before Halloween brought in shoppers, giving stores better-than-expected November revenue. Based on reports from malls, shoppers bought more than expected and threw in more items for themselves.

Strong online sales, which many retailers don't include in their monthly figures, brighten the holiday spending picture as well. Americans spent 13 percent more online this holiday season, ringing up a record $30.81 billion in spending, according to comScore, an Internet research firm.

Still, December's smaller increases underscore the challenges retailers face in getting shoppers back in the malls in the coming months when there's no holidays giving them reasons to spend.

Among the retailers that fell short of expectations was Target Corp. Its 0.9 percent increase in revenue at stores open at least a year fell short of analysts' 4 percent estimate. Its shares fell $ 3.81, or 6.5 percent, to $55.13.

Sales for key gift categories were pulled forward into November, Target Chairman and CEO Gregg Steinhafel said in a statement, and merchandise with lower profit margins made up a higher portion of sales than expected.

Clothing chain Gap Inc. suffered a surprise 3 percent drop in December. Analysts had expected a 2.6 percent increase.

Among department stores, Macy's revenue at stores opened at least a year rose 3.9 percent, below the 4.5 percent estimate. But the combined November and December figure rose 4.6 percent. The company is sticking to its profit outlook for the fourth quarter.

J.C. Penney Co. posted a 3.7 percent increase, helped by strong sales of fine jewelry and women's accessories. Analysts had expected a 3.3 percent gain.

After a strong start to the holiday season in November, sales and traffic trends for our brands were less consistent in December," Sabrina Simmons, chief financial officer of Gap, said in a statement.

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