Retailers Post Modest December Sales Gains, See Soft ’86 Prospects

The nation’s major retailers Thursday reported modest sales gains in December, but the results were below what most stores had expected for the holiday season. Sales increases for the full fiscal year ending Feb. 1, however, are expected to be higher than December’s poor showing.

Retailers said they anticipate that the lackluster sales trend of 1985 will continue this year because of record consumer debt levels. Industrywide sales for 1986 will fall below the projected 1985 growth rate of 6% to 7%, they predicted. With the inflation rate for general merchandise running at 2%, real gains for retailers will be on the order of 4% to 5%.

Industry analysts say consumers will continue their cautious spending patterns and retailers, particularly in Southern California, are likely to hold a lot of sales as they have done for the past two years. A few retailers, including Bullock’s, are already making major changes in their marketing strategies, however.

6 Fewer Shopping Days

The December results paint a more dismal picture of sales in the holiday period because retailers are reporting figures on the basis of a 52-week period ending Feb. 1, compared to 53 weeks in the year before. In addition, Thanksgiving occurred a week later in 1985 than in 1984, which resulted in six fewer shopping days between the November holiday and Christmas. For that reason, year-to-year December sales are not entirely comparable.

Comparisons among individual retailers also are complicated by the fact that not all retailers use the same reporting periods.

A more accurate measure of this year’s holiday sales, which typically account for about a third of a retailer’s annual sales and half of annual profits, is to combine November and December sales, analysts say.

“If we take the two-month period combined, sales were in line with expectations,” said Jeffrey Edelman, a retail analyst with Dean Witter Reynolds in New York, .

Growth in sales for the two months, however, was generally slower than growth during the first 11 months of the fiscal year.

Carter Hawley Up 0.9%

For example, at Carter Hawley Hale Stores, parent of the Broadway and Neiman-Marcus, December sales rose only 0.9%. Philip M. Hawley, chairman and chief executive, said: “December results were disappointing and came in below plan. Sales for November and December combined increased 3.7%, compared with our sales increase of 10.4% for the nine months” and 8.4% for the first 11 months.

Similarly, Minneapolis-based Dayton Hudson, parent of Target and Mervyn’s, had a December sales increase of 5.6%, 11.2% for November and December combined and 13.5% for the fiscal year to date.

Retailers enjoyed a burst of holiday buying in the last week before Christmas Day, but it wasn’t enough to offset the slower-than-expected sales pace during early December. Most chains, however, didn’t have to resort to such frenzied price promotions as they did in 1984.

Because most stores had maintained better control over inventories, they weren’t forced to take as many markdowns as in the year before. But, since most didn’t make their sales target for December, fourth-quarter and full-year profits may be lower than expected.

Meanwhile, analysts and retailers are projecting 1986 sales gains to be less than 6% industrywide.

Once again, consumers will benefit as retailers continue to emphasize price promotions such as one-day sales events that have been common in past two years.

Walter K. Levy, a New York-based retail marketing consultant, said retailers, particularly in Southern California, “are conditioning customers to buy on sale. There is no question about it. Retailers are driving business through promotion and not letting business seek its own natural rhythm.”

He said the promotions principally address price, not quality, which customer surveys say is the No. 1 priority among consumers.

“Every study we do shows that quality is more important than price. Retailers are so volume-oriented that, if they advertise quality, they are afraid they aren’t going to have big days as with the one-day sales. They’re so tied into making last year’s volume, they aren’t willing to risk a change. Most don’t have a strong enough stomach to change.”

But Levy believes that some new strategies will emerge over the next 18 months in Southern California. Bullock’s, for example, has already pulled away from the promotional fray by running fewer sales events in 1985. It is attempting to create a distinct image “by providing good value, quality and visual presentation that is attractive and exciting” to Bullock’s traditional upscale customer, according to Allen Questrom, chairman and chief executive.

For example, Bullock’s was the only one among the four major Southern California department stores--the others are Robinson’s, May Co. and the Broadway--to close on New Year’s Day. It also has decided to discontinue its furniture department.

Questrom explained: “We don’t see great opportunity in leading the promotion opportunities in this city, with all the majors attempting to do that. We want to be an upscale specialty store that caters to a broad base. . . . Basically, our feeling is that business is not based on any one day or month. We anticipate in the long term that we may miss a month, but we want to give customers day-to-day value, not one-day sensational values.”

Major Retailers’ Sales

(In millions of dollars)

Dec. Year % Nov.-Dec. Year % 1985 ago change 1985 ago change Sears 3,730 3,669 +1.7 6,396 6,458 -0.9 Kmart 3,590 3,390 +5.7 5,492 5,309 +3.4 J.C.Penney 2,289 2,120 +8.0 3,630 3,422 +6.1 Federated* 1,423 1,418 +0.3 2,197 2,122 +3.5 Wal-Mart Stores 1,242 938.0 +32.0 2,167 1,649 +31.4 Dayton Hudson 1,551 1,468 +5.6 2,388 2,148 +11.2 Montgomery Ward 680.8 683.6 -0.4 1,116 1,138 -1.9 May Dept. Stores 896.8 860.5 +4.2 1,414 1,322 +6.8 Woolworth 622.0 586.0 +9.0 911.0 875.0 +4.1 R.H. Macy 858.6 817.7 +5.0 1,304 1,207 +8.0 Assoc. Dry Goods 760.8 736.9 +3.2 1,192 1,119 +6.5 Carter Hawley Hale 707.0 701.0 +0.9 1,093 1,054 +3.7

* Excludes supermarket sales. Excludes foreign sales.