Christmas shopping: Did retail season already go over the 'fiscal cliff'?

Holiday retail sales were hampered initially this year by the the aftermath of hurricane Sandy and more recently by shoppers' fiscal cliff fears. The run-up to Christmas will make or break the season.

Damian Dovarganes/AP
Consumers shop for Christmas decorations at the Walmart Supercenter store in Rosemead, Calif., in Nov.

The final stretch to Christmas Day will make or break retailers’ holiday shopping season following a sluggish start that was hampered initially by turbulent weather conditions and more recently by the continued debate over the so-called fiscal cliff.

Hurricane Sandy and its aftermath was one reason the shopping season – the 50 days before Christmas – was off to a such slow start. Retail sales in November inched up just 0.3 percent compared with October, according to the US Commerce Department.

Black Friday, the day after Thanksgiving and typically one of the biggest shopping days of the year, appeared at first glance to indicate a significant downturn for retailers. According to MasterCard SpendingPulse, which tracks retail sales via all forms of payment, including cash and check, Black Friday sales this year totaled about $18.9 billion, a 4.9 percent drop from the previous year.

However, because most retailers opened their doors earlier than normal on Thanksgiving Day, an extra $6.2 billion was spent, hiking the combined spending for the two days by 2.1 percent over the same days in 2011.

In all of November, the Commerce Department reports, department stores took the biggest hit, with sales falling 0.8 percent from October. At Macy’s, November sales fell 0.7 percent compared with the same month the previous year.

Retail spending overall eased in early December, which Michael McNamara, vice president of research and analysis at MasterCard Advisors SpendingPulse, attributes primarily to headlines about the looming fiscal cliff of tax increases and spending cuts that are causing consumers to think twice about committing to big ticket spending.

“This is different from the debt ceiling debate that occurred in the summer of 2011. The stories coming out now about the cliff are much more about personal finance: whether or not the payroll tax is going to be there or not, what will the tax rates be, what services might be cut. All those question marks create a degree of hesitation about personal expectations which impacts spending,” Mr. McNamara says.

Indeed, the economy is at the forefront of consumers’ minds this season, according to a survey released last week by the National Retail Federation, the Washington trade group that represents 3.6 million US retailers. Almost half of holiday shoppers (47.8 percent) said the state of the economy will affect how much they purchase; 46.9 percent of those surveyed said they will pursue sales more than before, and 36.7 percent said they would comparative shop online.

The survey polled 8,333 shoppers from Dec. 4 to Dec. 10 and has a margin of error of plus-or-minus 1 percent.

For retailers this year, the final 10 days before Christmas are crucial, according to SpendingPulse: Last year, the time period accounted for 24 percent, or $147 billion, of total holiday season sales. McNamara says sales in all retail sectors are relatively even at this point into the season, although there is a slight increase for furniture and furnishings, primarily due to the “general stability and mild recovery in the housing market.”

Also potentially helping sales during this final stretch is the calendar: Last year, the final Saturday landed on Christmas Eve, which hurt sales. The extra full shopping day this season is expected to give retailers a boost that equals or surpasses the weekend following Thanksgiving.

Overall, the National Retail Federation forecasts that holiday sales will grow 4.1 percent to $586 billion compared with last year. The organization includes the full month of November in its estimation. 

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