Down Only Slightly, Retail Volumes Mask Markdowns Damage

Source Article: U.S. Retail Sales Fell 0.8% in Week After Christmas | www.bloomberg.com (Read Article)

Implications:
1) Big Markdowns mean it took additional goods to get to volumes.

2) Sales Weakness through the month kept encouraging more markdowns

3) Consumers aren't going to pay full price for goods in this environment.

Analysis:

The retail numbers are out for December, and to no one's surprise, it was the worst season on record. The volumes would have been even worse, except for the drastic markdowns taken by retailers as the traffic and sales tanked.

While the volume numbers are weak, the profit numbers will be nonexistent. "Buy one, get two," and "65% off" are a recipe for balance sheet meltdown.

Retailers decided to push inventory now to minimize the "Hangover" from the bad season, created by the lack of consumer confidence and the crisis in the financing mechanism people traditionally use to "splurge" at Christmas. Saks(NYSE:SKS), Macy's(NYSE:M) and Target(NYSE:TGT) were actively promoting markdowns early, Wal-Mart(NYSE:WMT) went low on toys pre-Thanksgiving.

The problem with that, while it's taking the drastic medicine now, is that consumers start to get used to the "Big Sale" and extra Savings as a course of habit.

It takes long to reestablish margin than it does to regain volume. As the retail roster begins to shake out, and operating results are reported, I guess we'll see who comes out on top.

Costco(NAS:COST) reported a 4% gain, we'll see where their margins were.

It's going to be a tough time for retailers. Let's hope these markdowns were able to be tolerated by the businesses that offered them.