Rethinking the return of the consumer

Expectations outpaced the willingness of consumers to spend during December, as large numbers of retailers reported results that were less than expected. Weather certainly affected the ability of shoppers to get to stores, as heavy rains pelted California and blizzards hit the Northeast, but that type of stuff happens in December. A bigger factor was that retailers were victims of their own success. Recall November was something of a promotionpalooza and shoppers found offers that arrived early and often to be irresistible. Sales were strong early in the month and the abundant offers and deep discounts available on Black Friday and Thanksgiving weekend enabled the cost conscious to complete their shopping early. That led to an inevitable lull during the early part of December as shoppers evaluated their spending, assessed their remaining needs and then completed purchases later in the month. Retailers felt the impact of this deal-driven buying behavior in different ways but the most noticeable was that it pulled demand forward.

This was particularly evident at Target as the company eked out a 0.9% December comp increase after reporting a 5.5% gain in November. The company had forecast a low to mid single-digit increase and analysts were looking for a 3.9% increase.

This isn’t to suggest that December was somehow a disaster, but there does appear to be a tendency on the part of market commentators to proclaim all is well with the consumer. To be sure, many retailers did report solid same-store sales growth, but the numbers were just not as high as analysts had forecast. That was the case at Macy’s where the company produced a 3.9% company that was below the 4.6% expectation and Kohl’s where a 3.9% comps was below a 4.3% expectation. JCPenney’s 3.7% increase was also slightly below expectations of 3.9%.

While expectations got ahead of some retailers, other managed to exceed estimates during December. That was the case at department store chains Nordstrom and Dillard’s. Nordstrom recorded an 8.4% increase compared to expectations of 3.9% and Dillard’s 7% increase was well ahead of expectations at 2.4%. At the low end, off price chains such as Ross Stores and TJX also produce sales better than analysts thought.