Holiday Retail Sales Down

Reuters writes Retailers’ holiday sales plummet 4 percent:

Retailers’ sales fell as much as 4 percent during the holiday season, as the weak economy and bad weather created one of the worst holiday shopping climates in modern times, according to data released on Thursday by SpendingPulse.

The figures, from the retail data service of MasterCard Advisors, show the 2008 holiday shopping season was the weakest in decades, as U.S. consumers cut spending as they confront a yearlong recession, mounting job losses and tighter credit.

“It’s probably one of the most challenging holiday seasons we’ve ever had in modern times,” said Michael McNamara, vice president of Research and Analysis at MasterCard Advisors.

“We had a very difficult economic environment. Weather patterns were not favorable toward the end of season, and that resulted in one of the most challenging economic seasons we’ve seen in decades.”

The figures exclude auto and gas sales but include grocery, restaurant and specialty food sales. Although SpendingPulse did not exempt the food prices, McNamara said the decline would have been steeper without them.

“There’s a lot of food that provide a buffer for the total retail sales numbers,” he said.

SpendingPulse tracks sales activity in the MasterCard Inc payments network and couples that with estimates for all other payment forms, including cash and checks. It has been tracking holiday spending figures since 2002. Exact comparisons beyond that year are difficult because of changes in measurements.

The holiday shopping season typically runs from the day after U.S. Thanksgiving, which occurs on the fourth Thursday of November, until Christmas Eve. But this year Thanksgiving was a week later than last year.

To benchmark a comparison, SpendingPulse measured the season from November 1 through December 24. Sales fell 2 percent in November and 4 percent from December 1 through December 24, according to SpendingPulse.

The holiday sales season can account for up to 40 percent of a retailer’s annual revenue.

It is rather amusing that Michael McNamara mentions unfavorable wether patterns as part of the reason for this slump. If anything, it is surprising that sales aren’t down by much more. Consumer credit will inevitably keep contracting. 2009 will forever be remembered as the year where the American consumer finally capitulated.

If the holiday sales season can account for up to 40% of the annual revenue, then a 4% drop during that season would approximately contribute a 1.6% drop to overall annual sales. If sales during the rest of the year were bleak, the number will be much worse. Add to that a significant drop in profit margins, due to slashed sales prices, and several retailers could easily see their free cash flow wiped out over the next years.

More mid to high-end retailers, such as Best Buy, Gap or Neiman Marcus will have to close down stores nationwide or at least trim down their existing stores. I expect that in 2009 commercial real estate will finally be recognized by the wide public as the disaster it is. Amercia doesn’t need any more Malls. Companies with high exposure to commercial retail properties will suffer. Stocks of Simon Properties Group (SPG) and Federal Realty Trust (FRT) will follow General Growth Properties (GGP) and tumble.

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