For stores, a very un-merry holiday

Sales during the crucial year-end shopping season evaporated as economic woes trumped gift-buying enthusiasm among consumers.

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By Parija B. Kavilanz, senior writer


NEW YORK ( -- The 2008 holiday sales season is one of the worst for retailers in decades, as consumers' concerns about the economy and job losses crushed the typical year-end shopping exuberance.

'I don't see any reason for retailers to be rejoicing at all," said Britt Beemer, chairman and founder of America's Research Group.

Among the early sales tallies, new estimates from MasterCard Inc.'s SpendingPulse Data service indicated that total store sales fell about 3% in November and December combined.

That would be significantly worse than the original forecast from the National Retail Federation (NRF), which anticipated a 2.2% gain for the period.

The NRF's projection would still be the weakest holiday sales gain in six years. That is, if it makes it to that level - NRF spokesman Scott Krugman said Friday that "it is going to be very difficult to hit that number."

"It's really three things that hammered retailers," he said. "There were fewer holiday shopping days versus last year. We had bad winter weather in the final week before Christmas."

The third thing that hurt retailers, according to Krugman, was deep discounting. Even though the big sales were designed to boost store traffic and sales, and "minimize the damage," he said that level of discounting will ultimately hurt merchants' bottom line.

The trade group will release its final holiday sales number in mid-January. Beemer of America's Research Group expects a 2.8% sales decline for the season.

The fourth-quarter shopping period is critical for merchants since it can account for as much as 50% of their annual profit and sales.

And since consumer spending also fuels two-thirds of economic activity, any signals of a severe pullback in discretionary buying also doesn't bode well for the overall economy.

"A difficult economic environment combined with unfavorable weather during the last week of shopping made 2008 one of the most challenging holiday shopping seasons in decades," Michael McNamara, vice president of research and analysis for SpendingPulse, said in the report.

SpendingPulse's estimates are based on aggregate sales activity in the MasterCard payments network, combined with estimates for all other payment options, including cash and check.

Based on those numbers, the firm said total clothing purchases in November and December dropped by as much as 21% over last year while purchases of electronics tumbled by 26% over last year.

"Sales above $1,000 have been a consistent drag on this sector throughout the season," McNamara said.

The report said luxury sales showed the largest year-over-year decline, down by more than 34% over last year.

Even online purchases, which had shown year-over-year sales growth since the advent of the Internet in the 1990s, took a hit this year as consumers curtailed their spending in all retail channels.

SpendingPulse numbers showed overall Web-based holiday sales fell 2.3% versus a year ago. Separately, a report last week from sales tracker ComScore said Web-based holiday shopping fell for the first time in seven years.

One retail analyst fears that although the holiday shopping season is winding down, the worst isn't yet over for merchants .

"January [sales] will just collapse," said Richard Hastings, consumer strategist with Global Hunter Securities.

Hastings had forecast a 6% to 8% sales decline for the three months of November through January.

He said January has become an important sales month over the past few years because retailers look to clear leftover merchandise and redeem the gift cards given over the holiday season.

But not this year, according to Hastings. The NRF forecasted a 6% drop in holiday gift card sales as a shaky retail environment, accented by a rising number of bankruptcies, made consumers nervous about whether a merchant would still be around in 2009 to make good on the cards. .

What's more, Hastings said there's no enthusiasm to shop if you really don't need anything.

"The layoffs will continue into 2009. People realize that and it's making them nervous about spending money," he said.

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