Tuesday, January 3, 2012

Retail Christmas Wasn't Boom or Bust

Photo: Reuters / John Gress
According to data from two dozen major companies, retail sales in December were up about 4% over the prior year's results, giving Wall Street the rosy perception that the season was essentially a successful one. As usual, marketers found ways to motivate consumers to shell out a few more bucks than they did last year, a result which typically signifies a healthy holiday season.

What is less talked about than the top line sales results, and far less encouraging, is the hidden "cost" of these added sales. In most cases, December sales gains were driven largely by deep discounts (several mall retailers ran "40% Off Everything" deals in the week before Christmas), as well as gimmicky promotions and extended store hours, all of which take a hefty toll on product margins and operating profitability. We won't understand the complete picture of the 2011 Christmas retail season until we see quarterly profit & loss statements from these companies.

With improved sales but potentially compromised profits, Christmas results are ultimately a mixed bag for retailers. Strong and moderately healthy companies will forge ahead, and a few companies who started the season from a considerably weaker position, and who then sold their souls just to get customers to cross their lease-lines, may not live to see the end of 2012. There is one macro upside though - the increased spending is a good sign that consumer confidence is on the rise, and when you add to that the steady improvements we are seeing in the job market, there is hope for continued slow but steady economic recovery.

Related Stories: December Retail Sales Are Sluggish, Black Friday Results and Holiday Trends

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