NEW YORK, N.Y. – The devil is in the deals.
The nation’s consumers shopped the winter clearance racks in January, resulting in strong sales during the month for a diverse group of retailers. But analysts expect shoppers to pull back as the deals dry up and Americans digest rising gas prices and a 2 per cent payroll tax hike that started in January.
“Consumers were shopping and hunting for those clearance items,” said Michael Niemira, chief economist at the International Council of Shopping Centers. But he cautioned, “it’s not clear sailing from here. Despite the strong reading, January may be one of the highest points of the year.”
Twenty retailers reported on Thursday that revenue at stores opened at least a year — an indicator of a store’s health — rose an average of 5.1 per cent, according to the International Council of Shopping Centers. That’s above the trade group’s 3 per cent estimate and the 4.5 per cent increase posted in December. It marks the highest reading since August 2012 when the figure was up 6 per cent.
Only a small group of stores that represent about 13 per cent of the $2.4 trillion U.S. retail industry report monthly revenue. But the data offers a snapshot of consumer spending, which has been heavily influenced by big discounts during the economic downturn of the last several years.
Retailers are coming off a ho-hum holiday season that was defined by heavy discounting to get shoppers to buy. January typically is the time when stores offer deep discounts on winter stuff so they can clear it out to make room for spring merchandise.
But once the clearance goods disappeared and were replaced by new spring merchandise, so did shoppers. Analysts say the absence of sales — coupled with gas prices that have risen for the past 20 days and the new payroll tax — caused sales tapered off in the last week or so of the month. Such pressures also hurt consumer confidence last month, which fell to the lowest reading in 14 months, according to the Conference Board.
“Sales at the beginning of the month were in line with our year-to-date-trend,” John Cato, CEO of Cato Corp., which sells moderately priced women’s and girls’ clothing, said in a statement. “However sales at the end of the month were significantly worse than trend. We think this was primarily due to the timing of tax refunds and the effect of higher payroll taxes.”
Still, the month was good for most retailers as shoppers seemed to focus more on signs of the economic recovery, particularly the improving housing, stock and job markets.
Macy’s, which runs Bloomingdale’s and Macy’s stores, said revenue rose 11.7 per cent in January, nearly doubling the 6.4 per cent increase analysts polled by Thomson Reuters had expected. And the retailer raised its fourth-quarter adjusted earnings forecast due to its strong performance in January.
Even Gap Inc., the Gap, Old Navy and Banana Republic chains that has struggled to regain its relevance in that past couple of year, said its January revenue rose 8 per cent on strength in its North American stores, above the increase of 4 per cent Wall Street expected.
Meanwhile, Target Corp., a discounter that sells everything from clothes to home goods to groceries, reported a solid 3.1 per cent increase in revenue, helped by strong sales of clearance items. That beat the 1.7 per cent estimate from Wall Street.
Despite the strong showing, Gregg Steinhafel, Target’s CEO, said its customers “continue to shop with discipline in the face of a slow economic recovery and new pressures, including recent payroll tax increases.”
As a result, Steinhafel said Target remains “focused on providing unbeatable value combined with a superior guest experience in both our stores and digital channels.”