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Retailers Look to Gift Cards, Post-Christmas Sales to Save the Season

The holiday shopping season limped across the finish line last week. When the final numbers are tallied, it looks like retailers will rack up about a 2.75 percent gain in same-store sales—far off the 3 percent to 7.5 percent many experts predicted (See "Mixed forecast for holiday shopping season" November 15). That compares with a 6 percent gain in 2005 and puts Christmas 2006 in line with lackluster 2002, when same-store sales rose 2.2 percent, according to the National Retail Federation (NRF).

The glass-half-full take on this picture: A surge in gift card purchases could produce a healthy post-holiday shopping surge. The NRF estimates that shoppers purchased $24.8 billion in gift cards this year, a 34.2 percent increase from $18.48 billion in 2005.

Indeed, reports from across the country indicate that traffic at malls took off the day after Christmas. But with unsold holiday inventories marked down by as much as 75 percent, it is unclear how much of a boost in sales over the next few weeks is needed to help retailers.

“We’ll know the exact figure in early January,” says C. Britt Beemer, founder of America’s Research Group, a Charleston, S.C.-based retail consultant. “Wal-Mart has a report coming out this week and if Wal-Mart numbers are weak it will be a pretty tough Christmas season.”

As to the impact of the gift cards, says Brady Lemos, an analyst with Morningstar who follows home improvement, electronics and apparel retailers: “People tend to spend them between Christmas and January because there are a lot of discounts, so we’ll have a good idea of their impact within the next month.”

According to Keane Co., a Wayne, Pa.-based risk management consulting firm, there may be as much as $4.8 billion in unused cards stashed in wallets after January.

So, what kept people away from the stores in the holiday shopping season? Analysts point to unseasonably warm weather, a lack of must-have items and a sluggish housing market which, despite a strong employment picture and a stock-market rally, left many consumers feeling less flush this year.

“People have used their homes as ATM machines in the past couple of years and now that housing prices have declined it’s causing them to be more cautious in their spending,” says Wayne Best, senior vice president of business and economic analysis with Visa USA. “We expected much stronger growth closer to Christmas.”

Visa USA estimates that total holiday sales grew by 6.5 percent this year, a revision downward from its earlier forecast of 7.5 percent. Visa’s numbers are higher than others because the company counts sales from November and December and includes categories such as grocery stores and restaurants, which are excluded from other holiday forecasts.

Researchers say retailers hurt themselves by stocking limited quantities of the most sought-after products and slashing their spending on Christmas decorations. And retailers fell down when it came to putting knowledgeable salespeople on the floor: An early December study by America’s Research Group, found 22.6 percent of shoppers left stores without buying anything because they couldn’t get service. That’s up from 20.9 percent last year. Nearly 31 percent of shoppers polled felt that retailers did not put as much into decorating as they did in 2005 and 25 percent were dissatisfied with discounts this year, compared to 20.1 percent last year.

Despite the perception by consumers that there was less discounting this year, retailers have already warned that early and deep price cuts will affect earnings. Wal-Mart has said that same store sales growth for December will not exceed 1 percent. Target expects sales growth of 3.5 percent to 5.5 percent.

By Elaine Misonzhnik

TAGS: News
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