Increased costs bit US retailers despite higher holiday sales

NEW YORK (AFP) – Holiday shopping reports released on Thursday underscored anew the challenges the United States (US) retailers face in the Amazon era – even if consumers are willing to open their wallets to spend.

The updates were a mixed bag overall, with several retailers reporting small or moderate increases in comparable store sales during the critical November-December period.

But a report from Macy’s aroused the most angst on Wall Street, after the chain slashed its profit forecast even as it signalled a modest increase in sales.

Shares in Macy’s plunged almost 20 per cent, while nearly every major retailer was pulled down as well.

That included companies like Target that reported higher holiday sales and confirmed – but did not raise – profit forecasts.

This November 23, 2018 file photo shows shoppers walking past sale signs in front of a retail outlet at a shopping mall in Montebello, California. – AFP

The results were an ugly finale to a holiday shopping season that opened with high expectations owing to robust consumer confidence amid a strong employment market, relatively low gasoline prices and a boost from tax cuts.

Mastercard SpendingPulse in December estimated holiday sales growth of around 5.1 per cent to more than USD850 billion, the strongest jump in the last six years.

By that estimate, the 2018 holiday shopping season was a strong one – just not for retailers.

“It was a good season. Consumers had more money to spend. They spent it,” said retail industry consultant Dana Telsey.

“But the cost of doing business is getting higher.”

Traditional brick-and-mortar retailers have invested in heavily beefing up their online platforms and offering incentives to lure buyers, such as free shipping during the peak holiday season.

At the same time, these companies also have spent heavily to improve the in-store experience, hiring consultants to help beautify the surroundings and in many cases employing more workers during the peak festive season.

The latest results suggested retailers still have not found a winning recipe for the transition to the e-commerce era.

“We know expenses are always a problem as more and more stuff moves online because people simply will not pay for you shipping it to them,” said retail industry consultant Jan Rogers Kniffen.

“They want it to be the same price in the store in my door. That’s just the way it is.”

Experts say the retail industry is still undergoing an existential shakeout.

Companies like Macy’s, JC Penney and Gap have shuttered stores in recent years, while Toys ‘R’ Us went out of business – a fate that could soon befall iconic American retailer Sears.