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Tuesday, December 30, 2008

Worst Holiday Shopping Season since 1970

NEW YORK (Reuters) -- The U.S. holiday shopping season is the worst since at least 1970 due to the recession, heavy discounting and harsh winter weather just before Christmas, the International Council of Shopping Centers said Tuesday.

Sales at U.S. chain stores fell 1.8% in the week ending Dec. 27 compared with the previous year, while sales fell 1.5% compared with the prior week, according to the ICSC-Goldman Sachs Weekly Chain Store Sales index.

While there is still some time left for retailers to capture holiday sales, "I don't have a lot of hope that it gives you a surprise lift," Michael Niemira, the ICSC's chief economist, told Reuters. "The discounts are so great and demand is so uncertain and uneven."

Declining sales

The ICSC expects holiday sales in November and December to fall 1.5% to 2%. That would represent the first decline since the ICSC began tracking holiday sales in 1969.

Some analysts expect consumer spending to fall even more sharply once the holidays end, putting further pressure on a retail sector that has already been cutting jobs, closing stores and in some cases, filing for bankruptcy protection.

Niemira said retailers face a difficult outlook for sales headed into January and first half of 2009.

"Until we see some moderation on the downward forces in the economy, it's unlikely to see any real turnaround or sustained turnaround," Niemira said.

The U.S. economy has been suffering from a recession since December 2007, with diminished access to credit and rising job losses whittling consumer budgets this holiday season.

To appeal to cash-strapped shoppers, retailers started cutting prices well before the U.S. Thanksgiving weekend, which marks the official start of the year-end holiday sales rush.

But the economic outlook darkened as the holiday season progressed and sales trailed expectations. Retailers' initial price cuts of 20% to 30% quickly turned into discounts of 60% to 70%.

Bad weather

Winter storms in the U.S. Northeast and Midwest also kept shoppers from stores during the last weekend before Christmas, one of the busiest shopping periods of the holiday season. In response, retailers introduced more discounts and online offers in a last-ditch effort to win sales and clear merchandise.

But the markdowns will take a toll on retailers' bottom lines. Stifel Nicolaus Tuesday cut its fourth-quarter earnings forecast for a number of retailers, including American Eagle Outfitters Inc, Abercrombie & Fitch (ANF), Casual Male Retail Group, Gap Inc (GPS, Fortune 500), Nordstrom Inc, Limited Brands Inc (LTD, Fortune 500), Ross Stores Inc (ROST, Fortune 500) and Urban Outfitters Inc (URBN).

"Retailers have used aggressive tactics: price cutting, bold promotions, and additional discounting to insure their cash flow, liquidity and a lean, current inventory as they enter what will likely be an extremely challenging retail environment this spring," wrote Stifel Nicolaus analyst Richard Jaffe in a research note.

According to data released by Redbook Research on Tuesday, U.S. chain stores sales for the week ended Dec 27 fell 0.4% compared with a year earlier.

The ICSC weekly U.S. retail chain store sales index measures nominal same-store sales, excluding restaurant and vehicle demand, and represents about 75 retail chain stores.

The ICSC expects December sales at stores open at least a year, or same-store sales, to be down 1% or "possibly more." To top of page