Retail Sales Fall Steeply After a Catastrophic Christmas

by Terri Potratz | December 30, 2008 at 11:59 am

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Last week, retailer sales declined the most in nearly 6 years as a result of extreme discounts and holiday sales during one of the worst shopping seasons in decades.

Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry in November and December, pressuring retailers including Macy’s Inc. and Talbots Inc. to mark down clothes and jewelry by as much as 70 percent after the holiday. That may further squeeze fourth-quarter profit margins.

“Fourth-quarter earnings for retailers will tank,” Richard Hastings, a consumer strategist at Global Hunter Securities LLC of Newport Beach, California, said in a telephone interview. “I don’t think we return to normal next year.”

Prospects for retailers are not looking good:

As many as 200,000 retailers could shut their doors next year, up from 160,000 in 2008, said Burt Flickinger, managing director of Strategic Resource Group, a retail consultancy. Moreover, as many as 3,000 malls and shopping centres in the US could declare bankruptcy by next July.

Holiday sales can account for upwards of 35% of some retailer's annual sales, putting many companies into the black for the year.

“A rapidly declining economy, almost the smallest period of days between Thanksgiving and Christmas, terrible weather patterns and very aggressive discounting by retailers all combined to create one of the worst holiday seasons in recent memory,” Beder wrote in a research note. That “easily overwhelmed any inventory discipline retailers were able to exercise.”

Many stores have already filed for bankruptcy, closed their doors or downsized in 2008, and the downward trend is expected to get much worse before it makes a turn for the better.

And analysts expect prolonged woes in the industry as the dramatic changes in shopping behaviour could linger for another two or three years amid worries about the deteriorating economy and rising job losses.
"You are going to see a substantial retrenchment in the retail industry," said Rick Chesley, partner in the global bankruptcy and restructuring group at international law firm Paul Hastings. "The downturn has been catastrophic."