Consumers didn’t pull back as much as feared during the holidays, but their late spending surge didn’t help retailers that were ill-equipped to deal with changes in behavior that will last beyond the season.
Retail sales rose 3.3% from Oct. 31 through Jan. 4, about the same pace as they grew the previous year, according to First Data Corp., which processes credit-card transactions and analyzed payments at 1.3 million retailers.
The gains came despite fewer visits to physical stores: Foot traffic fell 6.4% in November and December, according to RetailMetrix, which collects data through analytics software provided to retailers.
While several large retailers, including Wal-Mart Stores Inc. and Amazon.com Inc., haven’t reported their holiday results yet, a few major players provided a glimpse this week of how the season shook out. The shifts toward online shopping and consumers’ spending on travel and restaurants are pressuring retailers who aren’t adapting fast enough, particularly department stores.
Macy’s Inc. warned that sales at existing stores fell 4.7% in November and December and said it would cut thousands of jobs as it closes stores. Gap Inc., which is also closing stores, said December sales for existing stores fell 5% from a year earlier. But L Brands Inc., owner of mall stalwarts such as Victoria’s Secret and Bath & Body Works, posted an 8% jump in sales at existing locations, and said last month was its “best December ever.”
“You can’t just look at the mall and say the consumer is weak,” said Paul Lejuez, a Citi analyst. “Some of those guys are losing share.”
“The consumer is spending, but the question is what are they spending on?” said Mr. Lejuez. “They want newness, and they are finding it in technology and experiences. They are going to see “Star Wars” and going out to eat.”
In 2015, consumer spending adjusted for inflation likely contributed its largest share to GDP growth in a decade, according to research firm IHS Global Insight. That was partly due to the roughly $722 less that each household spent on gas last year.
But people aren’t spending that extra money on clothing or other items that typically top holiday shopping lists. Rather, they are eating out, buying cars and making improvements to their homes–and when they are buying apparel they are shopping at sporting goods stores for “athleisure” items, IHS found.
Retailers faced several challenges this holiday season, including high inventories, unseasonably warm weather and a slowdown in purchases by international tourists due to the strong dollar. And when shoppers did make purchases, they increasingly waited for discounts or ordered online. That crimps profits for most retailers, since online margins tend to be lower.
Despite years of effort and billions of dollars of investment, most retailers still get only a small percentage of their business from e-commerce, leaving them vulnerable to large online players.
Amazon.com captured 42.7% of online sales in November and December, according to Slice Intelligence, a research firm that gathered data on the email receipts of 3.5 million consumers. That compares with 24.8% share for the next 10 biggest retailers combined, including Wal-Mart, Target Corp., Macy’s, Nordstrom Inc. and Best Buy Co.
ComScore expects total e-commerce sales in November and December likely rose about 13% to $69 billion, according to preliminary estimates from the Internet analytics company. That’s shy of its forecast of a 14% increase. The shortfall came as more shoppers switched to mobile commerce, where the dollar value of purchases tend to be lower.
“The two biggest growth areas in retailing today are online and off-price,” said Jerry Storch, chief executive of Saks Fifth Avenue and Lord & Taylor parent Hudson’s Bay Co. His company reached a deal Thursday to buy Gilt Groupe Inc. for $250 million. It plans to combine the flash-sale site with its Saks Off 5th discount chain, as previously reported by The Wall Street Journal.
Most sales are still made at physical stores. Some 91% of shoppers made a purchase at a brick-and-mortar store this holiday season, according to a survey by the International Council of Shopping Centers. The primary reason for going to a store was the ability to see, touch and try on the merchandise, the survey said.
Macy’s blamed unseasonably warm weather, which sapped demand for coats and winter gear, for much of its sales declines. On Thursday, the Japanese owner of the Uniqlo chain of fast-fashion stores, Fast Retailing Co., also blamed warm weather for an 11.9% drop in December same-store sales. But J.C. Penney Co. reported a 3.9% increase in sales at existing stores, despite the warm weather, in part due to “record” online sales for the holiday season.