Shoppers look for bargains at the Citade
Robyn Beck  /  AFP - Getty Images
Shoppers look for bargains at the Citadel Outlets in Los Angeles last month. The latest retail sales data show only a modest start to the key holiday shopping season.
By John W. Schoen Senior Producer
updated 12/1/2005 2:57:58 PM ET 2005-12-01T19:57:58

Despite a recent drop in gas prices and a rise in consumer confidence, the holiday shopping season is off to a shaky start for retailers. Though shoppers turned out in force over the Thanksgiving weekend to snatch up heavily-promoted bargains, stores had a harder time moving full-priced goods. 

And with interest rates rising and consumers still hurting from a recent surge in gasoline prices, retailers will be under continued pressure to mark down merchandise to keep their cash registers busy.

“Things are improving, but I still think that consumers are being careful with their shopping,” said Madison Riley, a strategist at Kurt Salmon Associates. “The holiday season won’t be a disaster. It will be solid, but it won’t be a home run.”

Wal-Mart, the world’s largest retailer, set the pace for November sales with a relatively strong 4.3 percent increase in so-called “same store” results (which factor out gains from stores open less than a year.) But to get that increase, the company launched its holiday ad campaign Nov. 1  – the earliest in its history.

The campaign touted “door buster” specials, slashing prices on limited supplies of toys and electronics on “Black Friday,” the day after Thanksgiving. Laptop computers priced at less than $400 sold out quickly.

Wal-Mart's aggressive price-cutting may have contributed to a weaker performance by rival discounter Target, which posted a 2.6 percent sales gain for November. The chain had expected to post a 4- to 6-percent increase, but last month the company cut that estimate in half as the Thanksgiving weekend approached.

Retailers that were timid with bargains didn’t fare well.

“You had the huge Black Friday and the day after, and if you were not discounting on Black Friday, you did not have a great month,” Eric Beder, a retail analyst at Brean Murray, Carret, told CNBC.

Cost-conscious consumers also favored discount chains like Costco, which posted a 6 percent gain for November, over department stores like Federated, which said sales dropped 3.4 percent compared to last November. Kohl's Corp. said sales fell 0.1 percent, missing Wall Street forecasts, but Thanksgiving weekend sales were strong. J.C. Penny, which offered heavy Thanksgiving weekend discounts, bucked the trend with a strong sales increase for the month.

“Overall, department stores took it on the chin,” said Ken Perkins, president of Retail Metrics LLC, a research firm in Swampscott, Mass.

Analysts said the overall numbers for November were hurt by warm weather early in the month, which tends to dampen demand for the winter clothing stocked on store shelves. But some clothing stores apparently have better fashion sense than others.

Limited Brands Inc., which owns Victoria's Secret and Bath & Bodyworks, posted a 5 percent sales gain, more than double what analysts had expected. But Gap Inc., which has been undergoing a fashion makeover, reported a 4 percent drop.

Among teen clothing retailers, American Eagle Outfitters posted sales growth well below Wall Street expectations, and slashed its fourth-quarter profit forecast. But rival Aeropostale, which offered half-off merchandise throughout the store, saw its sales jumped 7.3 percent, well above expectations.

Despite the big Thanksgiving weekend turnout, there are signs Black Friday’s momentum may be fading. Wal-Mart is predicting more modest gains of 2 to 4 percent in December, a sign that shoppers’ enthusiasm may wane without continued rock-bottom pricing. (Wal-Mart has also said that its December results may be diluted by a continued increase in sales of gift cards, which shift some holiday shopping into January.)

But if the current shopping season follows the traditional pattern, consumers will likely hold out for price cuts as the shopping season winds down. Some analysts say shoppers have come to expect last-minute markdowns, and, as in years past, will likely hold back for traditional year-end sales.

Shopping on the Web has have gotten off to a stronger start. But Web retailers have also been offering heavy price cuts and free shipping to get budget conscious consumers to go online.

For the month of November, online spending was up 24 percent to $7.93 billion, according to ComScore. The research firm reported that spending was strongest for video game consoles, apparel, consumer electronics and home and garden, such as kitchen appliances and patio furniture.

Online auctioneer eBay has rolled out a major ad campaign, and printed up a slick catalog of popular items that shoppers can find on the site. L.L. Bean began offering free shipping in October with no minimum purchase. Toys R Us Inc., which provides free shipping on orders of $50 or more, is offering buy-one-get-one-free promotions.

Jupiter Research is projecting online sales to increase 18 percent to $26 billion in November and December, compared to last year's 22 percent. Forrester Research says online sales will grow 25 percent, compared to last year's 30 percent, to $18 billion.   

Reuters and The Associated Press contributed to this report.


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