Shoppers disappoint retailers this holiday season

Associated Press
In this Thursday, Dec. 20, 2012, photo, a holiday shoppers reflected in a ornament handing from a large Christmas tree at Fashion Island shopping center in Newport Beach, Calif. Thursday, Dec. 20, 2012. U.S. holiday retail sales this year are the weakest since 2008, after a shopping season disrupted by storms and rising uncertainty among consumers.  A report out Tuesday that tracks spending, called MasterCard Advisors SpendingPulse, says holiday sales increased 0.7 percent. Analysts had expected sales to grow 3 to 4 percent. (AP Photo/Chris Carlson)
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WASHINGTON (AP) — U.S. holiday sales so far this year have been the weakest since 2008, when the nation was in a deep recession. That puts pressure on stores that now hope for a post-Christmas burst of spending.

This year's holiday season was marred by bad weather and uncertainty about the economy in the face of possible tax hikes and spending cuts early next year. Some analysts say the massacre of schoolchildren in Newtown, Conn., earlier this month may also have chipped away at shoppers' enthusiasm.

Sales for the two months before Christmas increased 0.7 percent compared with last year, according to a MasterCard Advisors SpendingPulse report. That's below the healthy 3 to 4 percent growth that analysts had expected — and the worst year-over-year performance since 2008, when spending shrank sharply during the Great Recession.

But stores still have some time to make up lost ground. The final week of December accounts for about 15 percent of the month's sales, said Michael McNamara, vice president for research and analysis at MasterCard Advisors SpendingPulse. And the day after Christmas typically is among the biggest shopping days of the year.

Indeed, there was a crowd equivalent to a busy weekend day at Lenox Square Mall in Atlanta by midday on Wednesday. Laschonda Pitluck, 18, a student in Atlanta, had held off earlier because she's a student and saving all her money for college. Last year she spent over $100 on gifts but this year she's keeping it under $50.

She found 50 percent off things she bought, including a hoodie and jeans for herself at American Eagle and a shirt at Urban Outfitters. She said she would have bought the clothes if they hadn't been 50 percent off.

"I wasn't looking for deals before Christmas, I waited until after," she said. She bought boxers for her boyfriend, and was looking for a hat but couldn't find one.

In New York, the Macy's location at Herald Square also was buzzing with shoppers. Ulises Guzman, 30, a social worker, said he held off buying until the final days before Christmas, knowing the deals would get better as stores got desperate. He said he was expecting discounts of at least 50 percent.

He saw a coat he wanted at Banana Republic for $200 in the days before Christmas but decided to hold off on making a purchase; on Wednesday, he got it for $80.

"I'm not looking at anything that's original price," he said.

Holiday sales are a crucial indicator of the economy's strength. November and December account for up to 40 percent of annual revenue for many retailers. If those sales don't materialize, stores are forced to offer steeper discounts. That's a boon for shoppers, but it cuts into stores' profits.

Spending by consumers accounts for 70 percent of overall economic activity, so the eight-week period encompassed by the SpendingPulse data is seen as a critical time not just for retailers but for manufacturers, wholesalers and companies at every other point along the supply chain.

The SpendingPulse data released Tuesday, which captures sales from Oct. 28 through Dec. 24 across all payment methods, is the first major snapshot of holiday retail sales. A clearer picture will emerge next week as retailers like Macy's and Target report revenue from stores open for at least a year. That sales measure is widely watched in the retail industry because it excludes revenue from stores that recently opened or closed, which can be volatile.

In the run-up to Christmas, analysts blamed bad weather for putting a damper on shopping. In late October, Superstorm Sandy battered the Northeast and mid-Atlantic states, which account for 24 percent of U.S. retail sales.

Shopping picked up in the second half of November, but then the threat of the country falling off a "fiscal cliff" gained strength, throwing consumers off track once again.

Lawmakers have yet to reach a deal that would prevent tax increases and government spending cuts set to take effect at the beginning of 2013. If the cuts and tax hikes kick in and stay in place for months, the Congressional Budget Office says the nation could fall back into recession.

Shopping over the past two months was weakest in areas affected by Sandy and a more recent winter storm in the Midwest. Sales declined by 3.9 percent in the mid-Atlantic and 1.4 percent in the Northeast compared with last year. They rose 0.9 percent in the north central part of the country.

The West and South posted gains of between 2 percent and 3 percent, still weaker than the 3 percent to 4 percent increases expected by many retail analysts.

Online sales, typically a bright spot, grew only 8.4 percent from Oct. 28 through Saturday, according to SpendingPulse. That's a dramatic slowdown from the online sales growth of 15 to 17 percent seen in the prior 18-month period, according to the data service.

Online sales did enjoy a modest boost after the recent snowstorm that hit the Midwest, McNamara said. Online sales make up about 10 percent of total holiday business.

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Mae Anderson in Atlanta and Candice Choi in New York contributed to this report.

Daniel Wagner can be reached at www.twitter.com/wagnerreports.

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