U.S. holiday season worst in decades: retailers

Macy's Inc., one of the nation's largest department store chains, said it would shutter 11 stores across the country. Nordstrom Inc. said it was trimming inventory levels at its stores to meet weak demand. Even discount giant Wal-Mart Stores Inc., considered one of the few retail winners, lowered its earnings projections.

The news came as major chain stores confirmed that 2008 was the worst holiday season in decades.

With no prospect for a quick turnaround in sight, retailers are bracing themselves for an industry shake-up that will eliminate the weakest players, analysts said. That would leave store employees without jobs, commercial landlords scrambling for new tenants and consumers with fewer choices.

“There's more to come, clearly,” said Todd Slater, an analyst with Lazard Capital Markets.

“Retailers are struggling, are feeling the pain that has widely hit most other sectors. The retail sector will feel it most acutely. Nobody is immune.”

Desperate merchants were counting on a robust holiday season to pull them out of a months-long slump. The end of the year is a crucial time for the industry — sales from November and December usually make up 25 percent to 40 percent of annual revenue.

But sales fell 2.2 percent during the two-month period compared with a year earlier, according to the International Council of Shopping Centers. That made it the weakest holiday season in 40 years, despite some of the most aggressive markdowns ever seen on merchandise including electronics, apparel and luxury items.

“Retailers were forced to slash prices to entice consumers to spend,” said Michael Niemira, the council's chief economist, who said he worried the holiday season was losing some of its clout. “But even that strategy was not enough.”

Roughly 73,000 stores may close in the first half of this year, according to the shopping center group.

Macy's, which reported a 4 percent same-store sales decline, said 960 employees would be affected by its 11 store closures.

December sales at stores open at least a year, called same-store sales and considered a barometer of retail health, fell 1.7 percent, according to the shopping center group's tally of 36 major chain stores.

Teen apparel stores and luxury chains were among the worst performers last month.

Sales at Abercrombie & Fitch Co., which has resisted slashing its prices in an effort to protect its brand image, plummeted 24 percent. Luxury retailer Saks Inc., which made headlines in November when it offered designer goods for as much as 70 percent off, reported a 19.8 percent decrease.

Gap Inc., parent company of the Gap, Banana Republic and Old Navy brands, reported a 14 percent sales decline, missing analysts' expectations of a 9.3 percent drop.

“December was challenging, as customers waited until late in the month to shop and we faced a highly competitive promotional environment,” said Sabrina Simmons, chief financial officer of Gap Inc.

Retailers will continue to slash prices and offer other deals to attract wary customers, moves that could further erode profits.

Even chains that are doing well are planning strategies to ride out the recession, said economist Sung Won Sohn, a professor at California State, Channel Islands and vice chairman of clothing chain Forever 21 Inc.

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