Holiday sales: Much worse than feared

NEW YORK (CNNMoney.com) -- The retail industry's leading trade group blamed a "deep recession, severe winter weather and five fewer shopping days" for a 2.8% drop in 2008 holiday sales - a far worse outcome than the industry expected.

The National Retail Federation had originally forecast holiday sales for the combined November-December shopping months to grow 2.2%, which would still have been the weakest pace of gain in at least six years.

As it was, it turned out to be the first-ever decline in the measure since the group initiated it in 1995.

The two-month holiday period can account for as much as 50% of retailers' annual profits and sales.

"The current economic crisis proved to be more challenging than any had anticipated," NRF Chief Economist Rosalind Wells said in a report. "Consumers showed they were more than willing to wait out retailers this year causing increased pressure on prices."

Also, the group said a shift in the calendar which resulted in five fewer shopping days between Thanksgiving and Christmas in 2008 versus the previous year meant consumers had fewer days to do their gift shopping and merchants had fewer days to log additional sales.

The latest government report on December retail sales, also released on Wednesday, supported Wells' point.

The Commerce Department report showed overall retail sales fell 2.8% last month and declined 3.1% excluding auto purchases, despite a last minute surge in holiday-related purchases in the week before Christmas.

December's sales drop marked the sixth straight monthly sales decline in 2008 and the longest consecutive stretch of monthly declines in the measure in at least four decades.

What's more, last year's ugly holiday sales could force an unraveling of the retailing industry, forcing several chains to go out of business in 2009.

Many retailers, including Circuit City, Linens 'n Things and Whitehall Jewelers already either filed for bankruptcy or liquidated last year. That trend is expected to rapidly pick up pace in the weeks and months ahead.

The latest casualty - regional department store chain Gottchalks, which operates 58 stores in six Western states - filed for bankruptcy Wednesday.

But analysts warn that given the credit market freeze, it's highly unlikely that any merchant who files for bankruptcy in this environment will come out alive.