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Holiday Blues
-- December 4, 2002

Despite Wall Street's post-Thanksgiving Day euphoria about retail sales, the evidence is mounting that consumers have begun to rein in their spending. It seems that as the door-buster bargains have disappeared, so have consumers. And that's not good news for retailers.

Typically, retailers count on the holiday shopping season to turn a profit for the entire year. But that doesn't seem to be happening this year. Sales at Federated Department Stores, which operates Bloomingdale's and Macy's department stores, fell 7.4% in November. And the company expects combined sales for the November-December period to come in at the lower end of their previous estimate of flat to negative 2.5%. Office supply and equipment retailer, Office Depot sees sales coming in below plan for its third-quarter period.

With sales down during the crucial months of the year, we expect earnings to take a hit. Moreover, many of the retailers who've managed to increase sales have done so by discounting their goods to below profitability. That means, even with more sales, retailers will see fewer profits.

Now that investors have awoken from their tryptophan-induced naps, they're starting to realize that they're stuck with a bunch of turkeys. And they're going to start selling now.

related article: Federated Sees Holiday Sales at Low End