Holiday season sales driven by deep discounting

01/19/2014 12:00 AM

01/16/2014 9:23 PM

If you want to draw shoppers, you have to cut prices.

That’s what retailers discovered this holiday season, as they rang up a few more sales, but at the expense of profit margins. Battered by the recession and stagnant wages, Americans opened their wallets only when there was a deal.

Call it the new normal, driven by changing economics, changing habits and increasing Internet influence.

“Consumers have been conditioned to find the best deals. That has become a real challenge for retailers, and it certainly puts more pressure on the bottom line,” said Jack Kleinhenz, chief economist for the National Retail Federation.

U.S. holiday sales increased 3.8 percent to $601.8 billion over 2012, just shy of the federation’s forecast of 3.9 percent. The growth was slightly better than 2012, when sales ticked up 3.5 percent.

Sacramento-area malls are casting an upbeat tone, though final sales figures are still being tallied.

More than 1.3 million people flocked to Arden Fair mall during the holiday season, from Thanksgiving to December, according to management. Traffic fell by 1 percent compared with 2012.

Jamie McDaniels, senior marketing manager at Arden Fair, said the mall performed is in line with industry numbers. Based on conversations with retailers, conversion rates – the number of walk-in customers who make a purchase – were higher than in years past, she said.

“It started up slow but picked up quickly,” McDaniels said.

Stores strutted out “a lot more deals than in years prior,” she said. “Some retailers did 50 percent for Black Friday and then did it again later.”

Representatives for the Westfield Galleria at Roseville and Downtown Plaza said they saw small gains in traffic.

Though the region’s economy has improved, consumers remain guarded, said Sally Hamilton, a business professor at Drexel University’s Sacramento campus.

“People are willing to open their wallets if the cash is there, but they’re not willing to go deeper in debt,” Hamilton said. “That’s a permanent shift.”

Nationally, traffic at brick and mortar stores plummeted 12.5 percent, according to ShopperTrak.

Analysts and retailers blamed the drop in traffic on the abbreviated holiday season, six days shorter than last year due to Thanksgiving falling on Nov. 28. Some chains, including Macy’s and Kohl’s, tried to recoup the lost time by staying open until the wee hours.

“In 2007, shoppers were visiting 4.5 to 5 stores. Now it’s 3 to 3.5 stores,” said Bill Martin, founder of ShopperTrak, noting that the vast trove of information on the Internet is shifting consumer behavior. “There’s a lot less roaming around and a lot less impulse buying.”

Several large chains in recent weeks have slashed forecasts, citing the weak economy and tight profit margins fueled by price-cutting. Sears reported a 9.2 percent decline in sales during the nine-week period that ended Jan. 4.

Struggling department store J.C. Penney sent shock waves on Wall Street when it released a short press release saying it was “pleased” with the season, without providing details or sales figures. On Wednesday, Penney announced it was closing 33 stores and laying off 2,000 workers.

Online sales told another story.

E-commerce transactions in the fourth quarter rose 10.3 percent over last year, reported IBM Digital Analytics Benchmark, which tracks 800 retail websites nationwide. Sales completed on mobile devices, including smartphones and tablets, accounted for 16.6 percent of all online purchases – up 46 percent from the previous year.

After spending 20 minutes searching for a parking spot at the Galleria one day in December, Debbie Bailey of Granite Bay headed home to shop online.

“Amazon, Macy’s, Nordstrom, Microsoft. Anything I could buy online, I did,” Bailey said, adding that she spent $1,000.

Shipping giants UPS and FedEx struggled to cope with a flurry of last-minute sales. A handful of packages were delivered after Christmas, angering customers and leaving retailers to explain what happened.

Retail consultant Shelley Kohan of RetailNext, a Silicon Valley firm that tracks brick and mortar sales, cautioned against writing off the regional shopping mall.

“Over 90 percent of sales still occur in a store environment,” Kohan said. “Brick and mortar is not dead. It satisfies two needs of the customer: immediate gratification and socialization.”

Bill and Jane Branch of Loomis agreed.

“The mall is an attraction by itself. After shopping, we’d pick up a nice gourmet meal,” said Bill Branch, 80.

Increasingly, merchants are looking to blend technology with the in-store experience to combat the phenomenon of “showrooming” – when shoppers browse the physical store, but go online to make the purchase.

For example, physical stores offered to match prices of their online brethren, said Jay Henderson, strategy director for IBM Smarter Commerce.

Best Buy was one store that used the price-matching strategy, but it wasn’t enough to boost the chain’s Christmas season in a down year for electronics sales. The company reported a year-over-year drop in holiday sales last week.

But ultimately, a retailer’s success came down to its willingness to discount.

“Consumers don’t want to pay any more than they have to,” said Kleinhenz of the National Retail Federation.

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