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Big holiday discounts yield small profits for many retailers

The rich kept spending over the holidays, but for everyone else, it took a hot item like Apple’s iPad or “50 percent off” signs like this one in a Banana Republic store window in New York to pry open their wallets.

Associated Press

The rich kept spending over the holidays, but for everyone else, it took a hot item like Apple’s iPad or “50 percent off” signs like this one in a Banana Republic store window in New York to pry open their wallets.

NEW YORK — The 2011 holiday shopping season will go down in the record books as the year the Grinch stole stores' profits.

Many retailers sacrificed their bottom lines by pushing heavy discounts to shoppers bent on getting a good deal in a challenging economy. That created a sharp divide between stores that won the battle for wallets and those that didn't.

The big winners? Shoppers who held out for deals late in the season.

Retailers collectively reported a 3.5 percent increase in revenue at stores open at least a year for December, according to a tally of 25 merchants compiled by the International Council of Shopping Centers. For November and December combined, the figure rose 3.3 percent, a solid increase but still behind last year's 3.8 percent pace.

The figures are based on revenue at stores open at least a year, considered a key indicator of a retailer's health because it excludes results from stores recently opened or closed.

Retailers depend on the holidays, when they bring in as much as 40 percent of their annual revenue. The season also gives give valuable insights into what it takes to get Americans to spend in the weak economy. Clearly, the rich kept spending, but for everyone else, it took a hot item like Apple's iPad or right-on exclusive fashions — or a lot of "50 percent off" signs.

Winners included Limited Brands, Macy's, TJX and Nordstrom, which posted strong revenue gains that beat analysts' estimates. Macy's, Ross and Limited even boosted their earnings outlooks.

On the losing side, Target, Kohl's and J.C. Penney cut their fourth-quarter earnings projections after reporting weaker-than-expected sales. Gap had a big sales decline.

"There's no question that the divide is getting wider, and will get even wider this year as the winners continue to take share away from rivals," said Joel Bines, managing director in the retail practice of AlixPartners. "Consumers have limited time, money and attention, and they're investing in a smaller subset of retailers."

Stores' success relied partly on what they sell and who they sell it to.

Among discounters, Costco Wholesale, known for selling discounted household basics in bulk, continues to resonate with recession-weary shoppers. Its revenue at stores open at least a year rose 7 percent in December.

Discount chains like Ross Stores and TJX, which sell name-brand merchandise at discounts, were also standouts, pulling in shoppers looking for high-quality merchandise for less money.

But Target posted just a 1.6 percent gain in December on weak sales of electronics, books and music. A resurgent Wal-Mart Stores Inc., which used the holiday to hammer its low-price message, also offered a fresh challenge. Wal-Mart no longer reports monthly sales.

Among department stores, Nordstrom and Saks had robust gains as the wealthy continued to shrug off sharp swings in the stock market.

Ups and downs

Summary of percentage revenue change in December at stores open at least a year, compared with the same month last year:

Discount stores

Costco: +7 percent

Target: +1.6 percent

Department stores

Dillard's: +4 percent

J.C. Penney: +0.3 percent

Kohl's: -0.1 percent

Nordstrom: +8.7 percent

Macy's: +6.2 percent

Saks: +5.8 percent

Clothing stores

Gap: -4 percent

Hot Topic: +1.2 percent

Limited Brands: +7 percent

Ross Stores: +9 percent

TJX: +8 percent

Drugstores

Rite Aid: +3.6 percent

Walgreen: +0.4 percent

Big holiday discounts yield small profits for many retailers 01/05/12 [Last modified: Thursday, January 5, 2012 10:40pm]
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