Holiday Sales Fall Short

Back in November, we noted that Retail Sales were the Canary in the Coal Mine. In the coming weeks, we will find out just how mediocre the retail shopping season has been, as well as the hows and the whys it happened.

But the early data has come in,  and it is decidely unimpressive: Despite early forecasts of double digit sales gains for this holiday season — and some surprisingly strong but questionable data for November — it appears that the 2006 season’s sales will be disappointing.

That’s according to data culled this past weekend from VisaUSA, and from ShopperTrak. Each used very different methodologies for forecasting retail sales.

According to Visa USA (via the NYTimes):

"Visa USA, the credit card company, said yesterday that it would lower its closely watched forecast for holiday spending. Based on purchases by credit and debit card holders, Visa said sales rose 6.5 percent in November and December, compared with the same period last year, down from its initial forecast of a 7.5 percent gain.

The company’s unexpected downward revision — and the millions of dollars in lost sales it represents — could have broad implications for the nation’s merchants, who count on purchases during the holiday season for nearly half of their business."

“We knew spending would be slower than last year,” said Wayne Best, senior vice president of economic analysis at Visa USA. “But it seems to be even slower than we predicted.”

Retail performance was described as "lackluster" — despite respectable last-minute sales over the weekend. And those who did shop spent less, according to Visa USA — the cost of the average purchase dropped by 1 percent in December.

Consumers completed their shopping earlier this year than last, and aggressively sought out discounts. They didn’t have to look to hard, as this year saw earlier, deeper and more widespread price cutting than recent years.

According to ShopperTrak, December sales are up about 4.3% compared to 2005. That’s shy of most analysts pre-holiday predictions. Expectations are now for the slowest pace since 2002:

"Bargain hunters and latecomers flocked to stores this weekend as the retail industry made its last big push for pre-Christmas sales with increased discounts and other come-ons. But the late-buying binge was not enough to meet sales goals, and retailers are now turning to post-Christmas business to make this season a merry one, according to one report from a national research company.

"These were big days, but they came up short in terms of traffic and sales," said Bill Martin, co founder of ShopperTrak RCT Corp., a research firm, referring to this past Friday and Saturday. ShopperTrak monitors total retail sales at more than 45,000 outlets"

The main problem? The WSJ note that "Shoppers did come out in full force this past weekend; they just didn’t spend as much as last year." Spending was still "very soft compared to last year."

That implies that the US consumer is stretched. This should come as no surprise to attentive observers, given what we know about consumers’ savings rate, their Real Wage gains, and the loss of their free cashflow via declining mortgage equity extraction . . .


Last-Minute Shopping Falls Short
NYT, December 26, 2006

Shoppers dash retailers’ hopes
Final weekend not as robust as hoped
Anne D’innocenzio
AP, December 25, 2006

A Lackluster Last Weekend
High Demand for Electronics Wasn’t Enough to Offset Tepid
Sales of Cold-Weather Apparel
December 26, 2006; Page B1

Christmas’ arrival doesn’t signal the end of holiday shopping
Jayne O’Donnell
USA TODAY,  12/25/2006 10:07 PM ET 

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What's been said:

Discussions found on the web:
  1. Barry Ritholtz commented on Dec 26

    Note that all these percentages are a apples and oranges, based on different measures — Visa measures credit card usage, Shopper Trac is traffic based extrapolation.

    We will get the final holiday sales % gains in January.

  2. Sherman McCoy commented on Dec 26

    Don’t worry, Barry… the Wall Street bonus money will save us. Who cares if people aren’t buying at the Wal-Mart in Kansas! And I see you are up early too… but you won’t get to the Ferrari dealer before me!!!

  3. logicalthought commented on Dec 26

    I’m a little confused: it seems to me (putting aside the issue of retailers’ margins) that these gains are still outstripping the rate of inflation, right? Thus, aren’t they “real” and, if so, why is this considered to be disappointing (except, perhaps, relative to expectations)? Is it that population growth has reduced sales on a per-capita basis? Or am I missing something else here?

  4. Michael J. commented on Dec 26

    My favorite quote was this one: “But it seems to be even slower than we predicted.”

    Is it just me, or does everyone else ignore “holiday forecasts” for sales as simply wishful thinking and spin? “Retailers predict banner year!” etc. Are these “predictions” ever anything more than wishful thinking?

    Denial is not just a river in Egypt.

  5. GerryL commented on Dec 26

    I just heard on CNBC the reason for slower retail sales was warmer weather. I feel better now.

  6. Barry Ritholtz commented on Dec 26

    Thats a welcome change from the usual reason: Colder weather

  7. anderl commented on Dec 26

    Slow sales are expected by Wall Street as retailers minimized their hiring ahead of the Christmas season. So their sales may just barely put them in the black this year but only because they contained labor costs. Never a good sign when stores deeply discount.

    My opinion is that there is going to be a rotations into defensive positions into 4th Q earnings as retailers will be weak, there will be excessive inventory build up due to the weaker sales and we are now entering the credit crunch months where consumers cut back on purchases because they try to pay off what debt they did accumulate over the holiday season.

    Techs and small caps will be the first to get hit, then a follow through by the broader industries.

  8. Fred commented on Dec 26

    What’s so bad about UP 6.5%? Bears had been predicting negative sales.

    You also failed to mention the online effect:

    “, Inc. (NASDAQ: AMZN) today announced that the 2006 holiday season
    finished as its best ever, with its busiest day being December 11th. On this
    day Amazon customer orders exceeded 4 million items. Additionally, the company
    wrapped up its first ever Amazon Customers Vote promotion, where 1,000 Xbox
    360s were sold in 29 seconds, and 1,000 Axion portable DVD players were sold in
    34 seconds.”

  9. bodanker commented on Dec 26

    >>What’s so bad about UP 6.5%? Bears had been predicting negative sales.<< What's bad about UP 6.5% is that it is down 1% from the initial forecast/expectation of up 7.5%. And how was the online effect not mentioned? VISA's forecast was mentioned first, and the vast majority of online sales are done via credit/debit cards, many of which are VISA.

  10. Fred commented on Dec 26

    Up is up in my world.

    But hey, build up the negative sentiment, PLEASE!!

  11. Norman commented on Dec 26

    Yep, we all thought that retail sales would be double digits, NOT. Certainly +6.5% ain’t bad in a 2-3% inflation enviornment. Little grasping at straws, here.

  12. Teddy commented on Dec 26

    Fred, are you sitting down? Please also put down that inflated cup of coffee cuz I’ve got some bad news for you. There is NO Santa Claus and the world is NOT flat, but round and has been so for around 4.5 billion years. Just ask the Chinese. They’ll tell you.

  13. Barry Ritholtz commented on Dec 26

    Note that there are several different percentage numbers that get used interchangeably (and incorrectly).

    There are: Total retail sales, holiday sales, Retail ex food, energy and autos; Nominal sales, Real (inflation adjusted) sales, Credit card sales, total sales, etc.

    We will get more refined data — and an Apple to Apple compariosn — in early January.

  14. winjr commented on Dec 26

    GerryL wrote:

    “I just heard on CNBC the reason for slower retail sales was warmer weather. I feel better now.”

    Barry responded:

    “Thats a welcome change from the usual reason: Colder weather.”

    But, as we can clearly see, bad weather was indeed to blame:

    “Also, the SpendingPulse report said bad weather in some areas of the nation kept shoppers away from malls and hurt already sluggish apparel sales.”

    Apparently, everything turns on where you live. If the weather is bad, that keeps shoppers at home. But if the weather is good, that instead keeps shoppers at home.

    Everybody straight on this now?

  15. bodanker commented on Dec 26

    >>Up is up in my world.

    But hey, build up the negative sentiment, PLEASE!!<< "Up is up" is a ridiculous statement. I'm sure you would agree that, if expectations are 7.5%, there is a vast difference between actuals of 6.5% and 4.5%. Both are "up", but the market would generally react more favorably to the former than the latter. I'm not trying to build negative sentiment. I was simply answering your question of why a number lower than expectations is bad.

  16. jj commented on Dec 26

    6.5 on 7.5% is a miss ….. we trade on expectations when they differ from reality…. the group’s a short , though the high-end retailer faired somewhat better

  17. donna commented on Dec 26

    My presents were a puppy from a breeder and jewelry from a local artist friend. Our big-ticket purchase was the PS3, which my husband got directly from Sony since he works there. We bought an ipod directly from Apple for my younger son, and a guitar heroes guitar for my older son online directly from red octane. Almost everything else came from Amazon or one of their sellers.

    What are these “retailers” of which you speak?

  18. Fred commented on Dec 26


    “the world is NOT flat, but round and has been so for around 4.5 billion years. Just ask the Chinese. They’ll tell you.”

    Actually the world IS flat…just ask Tom Friedman….and the Chinese know it. It’s called a booming GLOBAL economy. The angst you feel about a 1% “miss” on US holiday sales is mice nuts to the economy.

    BTW, please read the cover story in Barrons.

    “Bears worry an impending recession lies ahead, driven by overleveraged consumers burned by a collapse in home prices, and a huge current-account deficit that bespeaks our lust for consuming more than we produce and spending more than we save. But according to GaveKal, an international research boutique and respected advisor to some of the world’s largest companies, the consumer is healthy, the U.S. economy stable, a housing crash improbable, and U.S. stocks are dramatically underpriced despite their current levels. The global economy, it asserts, is on the threshold of a decades-long deflationary boom that will lift America and much of the world to unprecedented prosperity. Its optimism stems from a theory that profound economic changes have and are taking place that have been ignored by most commentators — specifically a business model it calls the “platform company.”

    (Summary from Seeking Alpha.)

  19. Teddy commented on Dec 26

    Fred, ask the Chinese why they’re giving financial and military aid to Iran. Ask the Chinese why they continue to pirate our movies and music. Ask the Chinese (according to Barrons) why they are running a high end tech trade surplus with the US when Japan and Taiwan will only let them assemble low end junk. Ask the Chinese why they believe in free trade, but not fair trade. Ask the Chinese why they use lasers to knock out our satellite system when it passes over China and North Korea. And why do some of our retired Generals say that China is a bigger threat to the US than Iran, North Korea, Afghanistan, and any other country?

  20. Fred commented on Dec 26

    Ok Ted,

    If you and Lou Dobbs want to send the global economy into the toilet, continue that line of “thinking”. The world is changing. We can’t have a temper tantrum, take our ball home and cry.

    Keep you friends close, but your enemies closer.

  21. Teddy commented on Dec 26

    Fred, aren’t you on the wrong blogsite?

  22. A Dash of Insight commented on Dec 26

    Holiday Retail Sales: Just What the Doctor Ordered?

    Preliminary figures for holiday retail sales are in, and they are just what the doctor ordered—Dr. Bernanke, that is! As any investor must know by now, the Fed is trying to restrain inflationary expectations in the interest of long-term economic

  23. zell commented on Dec 26

    The Gavekal analysis is just whispering sweet nothings into the ears of their large corporate clients and only applies to them.
    Platform corporate structures are great for those on the platform and their shareholders but you are not going to get a whole country on a platform. What a cover story for Barron’s to run. It’s absolutely breathtaking. I’m embarrassed for Gavekal- they’re just toasting their clients with Kool Aide. In the last paragraph J. Laing describes Charles gave’s construct as A “Brave New World” economy and has Gave admitting that it ” could come a cropper” if the U.S. populace doesn’t see the world his way.”

  24. alexd commented on Dec 26

    Analysts as a group are analysts. Could someone tell me as a percentage how often they are right as a group? I am willing to bet that there are some people who are more astute than others.

    Also it shows group think on our part. We love to be contrarians, but are disappointed when a “group” gets it wrong. I suspect the group of analysts is smaller than the crowd, but smaller and dedicated does not make one correct. We need to establish who has insight and whose batting average is currently up to snuff.

    As an example I can find a group of value investors who are very consistant and I pay attention to what they think. This is due to the fact that the qualtiy of thought that is expressed through their actions and results over a period of time, is shown to be good. Give me the same approach for the analysts. We need to find out if they are a bunch of dummies or wise men. With 3/4 of the mutual funds performing less than the sp I have to figure a lot of fund managers must be really good on the eyes or why else keep them around? The older ugly ones have to rely on results. Might be same for the analysts.

    Hope you had a merry xmas.

    Fishes on earth good will to men.

  25. dryfly commented on Dec 27

    Platform Gavekal

    Probably name a Gulag after them, come the revolution.

  26. Jason commented on Dec 28

    This is quite anecdotal however worth mentioning.

    A friend of the family is a store manager @ old Navy.

    When I asked him about sales in nov-dec he said they were not anything close to last year.

    In fact last year his store hit bonuses for making/beating sales targets in Nov, Dec (05). The store has yet to hit a bonus since spring 06, and “were not close” to targets this holiday season.

    Anecdotal, however anecdotes can be useful at times…

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