Holiday discounts crimp retailers’ profits

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Jesus Esparza, of Chicago, shops at the Macy’s on State Street store in Chicago. | AP photo

Updated: February 7, 2012 8:29AM

NEW YORK — Many retailers delivered solid sales gains for December, but heavy discounts needed to get shoppers to buy exacted a high price, clouding the holiday shopping season.

Merchants had to mark down coats and other gifts to get shoppers to buy in a challenging economy. A mild start to winter also didn’t help, wilting shoppers’ appetite for cold-weather merchandise. That resulted in a string of retailers reducing their earnings outlooks.

The need for discounts also is raising concern about what it will take to get shoppers to spend again in coming months.

Retailers collectively reported a 3.5 percent increase in monthly revenue at stores open at least a year — an indicator of a merchant’s health, according to the International Council of Shopping Centers’ tally of 25 merchants.

For November and December combined, holiday sales rose 3.3 percent, a solid increase, but still behind last year’s 3.8 percent pace.

With shoppers sticking to a tight budget given high employment and paltry wage growth, there were clear winners and losers. Limited Brands Inc., Macy’s Inc. and Nordstrom Inc. posted strong revenue gains that beat analysts’ estimates. Macy’s and Limited even boosted their earnings outlooks.

In contrast, Target Corp., Kohl’s Corp. and J.C. Penney Co. cut their earnings outlooks after reporting weaker-than-expected sales.

“The holiday season was OK,” said Michael P. Niemira, chief economist at the International Council of Shopping Centers. “But because of the extremely competitive environment, stores had to do whatever it took to get those sales, and that affected profits.”

December’s results offer an important benchmark for retailers and economists. During the holiday shopping season, merchants can make up to 40 percent of their annual revenue. The period that runs from November through December also gives valuable insight into what it takes to get Americans to spend in the weak economy.

Clearly, the rich kept spending, but for everyone else, it took either a hot item like the iPad or a lot of “50 percent off” signs to win over shoppers.