Wal-Mart, Other Retailers See Tough Months Ahead; December Same-Store Sales Disappoint

Wall Street Journal, Jan 9, 2009. Retailers warned of lower sales and profits in months to come as grim declines in December store sales emphasized the toll the plunge in consumer spending is having on the U.S. economy.

Disappointing December sales punctured hopes for a turnaround in spending amid bad jobs and earnings reports from major companies. The Labor Department released statistics showing the number of Americans drawing unemployment benefits rose to 4.6 million for the week ended Dec. 26, the highest since 1982.

Nov-Dec 2008 was the worst holiday showing since the industry group began collecting data in 1970.

“Wal-Mart is hitting the wall, Costco is caught in the crossfire, and the only ones that really seem to be immune are some of the supermarkets and drugstores,” said Burt P. Flickinger III, managing director of retail consulting firm Strategic Resource Group, which predicts that the retail economy is only a third of the way into a 1,000-day slump. “Things are going to get worse.”

Even affluent consumers have curtailed the spending. Neiman Marcus Inc. reported a 28% slump in December same-store sales, while Macy’s reported a relatively modest 4% decline but cut its earnings outlook on greater markdowns.

Saks Inc. said its sales had dropped 19.8% and warned that due to competing promotions and continued consumer expectations for markdowns, it would have a “significant year-over-year decrease” in profit margins for the fourth quarter.

Consumer confidence slumped in December to the lowest level since the Conference Board first began tracking it 40 years ago, as consumers expressed deep concerns about the economy and some 42% said jobs were “hard to get.”

Even sectors such as the housing market, where sales have been in decline since 2005, are showing no signs yet of bottoming. Home prices have fallen by about 25% from their peak. Meanwhile, U.S. stock shares ended 2008 down by about 40% on average, wiping out much of the wealth households used in recent years to finance their spending and fuel U.S. economic growth.

Now, layoffs and wage freezes are forcing households to reduce spending further, crimping a wide range of retail, restaurant and white-collar service jobs.

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Holiday Sales News Tracker provides a look at holiday-sales news and trends, including how stores are performing, what products are moving and how consumers are faring, from around Thanksgiving through New Year’s Day.