Retailers Reeling From Holiday Malaise

December 4, 2008

(bettertrades) - Can it get any worse for the nation's retail operators? Black Friday promotions failed to prevent retailers from posting the worst aggregate November sales on record. The exclusion of Cyber Monday, which fell on the first of December due to a later Thanksgiving, contributed to the historic retail woes last month. As consumers brace for the realities of a prolonged recession, it has become clear that retailers are being left out in the cold heading into the holidays.

Macy's (M) same-store sales dropped 13% in November, down to $2.33 billion, more than Wall Street forecasts calling for a 12.1% decline. J.C. Penney (JCP) sales fell 11.9% last month as total sales slipped to $1.8 billion. Kohl's (KSS) reported November sales plummeted 17.5%.

The main exception to holiday spending malaise was discount retailer Wal-Mart. Sales ex-fuel climbed 3.4%, beating the street's 2.1% forecast. Wal-Mart credited lower fuel costs for the better-than-expected sales. The discount-retailer guided to the high end for its expected December sales of 1% to 3%. Hot Topic (HOTT) and Buckle (BKE) joined Wal-Mart amongst the ranks of the few retailers to post gains in November sales.

While lower gas prices helped Wal-Mart, Costco (COST) attributed their 5% same-store sales decline to lower fuel prices in addition to a strengthening dollar. With the dollar's recent appreciation, American goods have become more expensive in foreign markets.

Wal-Mart's primary competitor, Target (TGT), reported same-store sales plunged 10.4% in November, more than the 8.9% drop anticipated by a poll conducted by Thomson Reuters.

The International Council of Shopping Centers reported aggregate apparel retailers, including American Eagle Outfitters (AEO), Chico's FAS (CHS), Limited Brands (LTD), Gap (GPS), and Saks (SKS) posted a 10.4% decline.

In addition to Macy's, J.C. Penney, and Kohls, Nordstrom's (JWN) 16% November same-store sales decline factored into the 13.3% decline in department store sales.

Despite the downbeat sales data, retailers engaged in bizarre trading during Thursday's session. Almost all of the major retailers that posted terrible same-store results traded to the upside. Despite trading in the green, Wal-Mart lagged some of its retail counterparts. Strong sales of low-margin goods could be propping up same-store sales at the nation's leading retailer, possibly setting the stage for Wal-Mart's return to the pack as the recession wears on.

Retailers might be able to better weather the storm if outlook for consumer spending wasn't so bleak. Many retailers are increasingly forced to discount their prices so deeply, simply to create traffic, that margins are being squeezed to the point of unprofitability. Wal-Mart's ability to capture market share during a considerable slowdown in consumer spending, thanks to discount pricing, has left many retailers without much choice. In the end, there may be no panacea to the holiday blues settling in for the nation's retailers.