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Retail sales surge, but not the profits

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January 06, 2012|By Jenn Abelson

There are too many retailers chasing after frugal and fatigued shoppers,… (Suzanne Kreiter/Globe…)

Many merchants rang up strong sales in December, but the deep price cuts that lured shoppers took a toll on profits at some retailers during the holiday season.

Framingham discounter TJX Cos. - it owns T.J. Maxx, Marshalls, and HomeGoods - turned in one of the strongest performances, with sales at stores open at least a year soaring 8 percent last month.

Macy’s, the department store chain, reported a 6.2 percent gain, and the luxury retailer Nordstrom posted an 8.7 percent increase in revenues for the month.

Across the country, chain store sales were up 3.5 percent in December after two months of lackluster reports, according to the International Council of Shopping Centers. But sales for the holiday season - November and December - rose just 3.3 percent, below analysts’ projections and less than the 3.8 percent gain in 2010. This two-month stretch is a critical period when merchants typically generate up to 40 percent of their annual revenue.

“American consumer demand is sluggish and fickle; most retailers had to depend on deep price discounts in order to increase sales revenue, taking a bath on per unit profits - sales up, margins down,’’ said Chris G. Christopher Jr., a senior principal economist at IHS Global Insight in Lexington.

“When there is a fight for market share in a soft economy there will be winners and losers. There are too many retailers chasing after frugal and fatigued shoppers.’’

Merchants faced several challenges during the holiday season, including rising prices for cotton and other commodities and unseasonably warm weather that discouraged shoppers from buying jackets, sweaters, and other winter goods. That left retailers holding large inventories into late December and triggered major discounting at chains such as J.C. Penney and Kohl’s, said Michael P. Niemira, chief economist at the International Council of Shopping Centers in New York.

Kohl’s Corp. reported that revenue at stores open at least a year, known as same-store sales, dropped 0.1 percent in December after tumbling 6.2 percent in November, a result that was far weaker than what analysts had expected.

Target Corp., facing relentless competition from Walmart, last month eked out a 1.6 percent increase in same-store sales, a key indicator of a retailer’s health. Target, after falling below Wall Street’s estimate, lowered its fourth-quarter earning’s guidance.

TJX’s chief executive, Carol Meyrowitz, said in a statement yesterday that the 8 percent sales increase exceeded the company’s expectations, but she acknowledged it relied on low prices throughout the season to motivate consumers.