New York — After returns are processed, gift cards redeemed and closeout sales tallied, the holiday season will likely prove more ho-hum than ho-ho-ho for retailers.
Despite red-hot holiday demand for CE — especially iPods, flat-panel displays, digital cameras and video-game consoles — retail sales failed to keep pace with their explosive start during Thanksgiving weekend.
Instead, dealers resorted to deep, albeit targeted, discounting both before and after Christmas to help turn slow-moving SKUs of camcorders, audio components and tube TVs, while scrambling to fill innumerable out-of-stocks.
At press time, holiday sales were expected to come in on the low side of analysts' projections, about 3 percent over 2003's lackluster performance, or approximately $220 billion in total.
Still, there were bright spots. Absent any must-have holiday item or in-stock iPods, shoppers snapped up gift cards in record numbers. The estimated 20 percent to 25 percent year-over-year increase was expected to help fuel the traditional 8 percent to 10 percent of seasonal sales that are transacted after Christmas.
E-tailers also enjoyed their best season ever, with online sales also tracking about 25 percent higher than Holiday 2003, pushing e-commerce totals to about $16 billion. The most highly trafficked CE sites, according to Nielsen/NetRatings, included Best Buy's Web site, eBay Electronics, Circuit City's Web site, SonyStyle.com, TigerDirect.com, RadioShack.com and CompUSA.com, while at Amazon.com, CE sales surpassed book volume for the first time over Thanksgiving weekend, and iPods, DVD players and digital cameras lead the company to its busiest holiday season ever, setting a single-day record of more than 2.8 million units ordered.
To underscore the point, Top Ten brand-specific search terms this past season included Nintendo DS, Playstation2, iPod and Xbox, while leading generic searches included “digital cameras” and “cellphones,” according to New York-based Internet analysts Hitwise.
Still, the season traditionally ends early for cyber stores, which need extra time to ship their holiday orders, while many shoppers use their gift cards to take advantage of post-holiday markdowns, eroding dealer profits.
So why did Santa stall? Dealers contacted by TWICE cited a confluence of factors, from high energy prices and low consumer confidence, to an early Hanukkah and overly conservative forecasting by manufacturers and merchants.
Indeed, the drive to contain costs by keeping inventories lean may have cost retailers millions in lost sales. “We should have been more aggressive, and didn't stretch far enough,” said Warren Mann, executive director of the MARTA Co-op of America, of both his buying group and vendors. “We're getting shipments 30, 40 days late, and fill rates of 50 or 60 percent,” he said, forcing member dealers to seek out “secondary sources, secondary categories and secondary ideas.”
Mann isn't certain whether MARTA-ordered inventory was being redirected to other markets or national chains, and critiqued manufacturers for short-sighted planning and just-in-time delivery schemes. “A 30-inch-wide LCD-TV at $799 is a to-die-for product. Why not make enough?” he asked. At the same time, he's kicking himself for not committing to more $3,000 LCDs. “We could have sold four times more than we ordered,” he lamented.
Mann said his members were also hamstrung by what he described as the most widespread MAP violations he'd ever seen by national accounts. Dealers were left with the choice of maintaining MAP and losing business, or matching price promotions and hurting both their profitability and vendor relationships.
All in all, “Our guys are saying that Christmas has not been anywhere as good as they hoped it was going to be,” Mann relayed. “The saving factor is that the electronics business doesn't quit at Christmas, so we're hoping for the post-holiday and Super Bowl lift.”
Gregg Richard, VP/merchandising at New York metro area powerhouse P.C. Richard & Son, was also holding out hope for a post-holiday surge. “The season started off strong. Business was real good, and then it slowed down. From an extremely strong Black Friday, it leveled off, and the numbers have not been as strong as we'd like to see. Still, we're planning to end the year real strong.”
Pushing the 49-unit chain into positive sales territory was enhanced-definition plasma and LCD displays, MP3 players and digital cameras. Spot shortages aside, Richard said he's “fine on inventory,” although he couldn't get enough iPods to meet demand.
Availability wasn't an issue for Bernie's, the New England brown- and white- goods chain, which made video the focus of its holiday season.
“We're selling the full mix — traditional rear-projection, DLP and every size of flat panel — and haven't had any inventory pinches because we bought smart and are well-connected with our suppliers,” said senior VP and chief operating officer John Wilkerson.
Buoyed by a spate of new and relocated stores, Bernie's enjoyed its biggest December yet. “The season began with a solid Black Friday, and we hit our numbers the week after. And they were aggressive numbers,” Wilkerson said.
Still, he acknowledged the challenging second-half environment for retail, which was exacerbated by a miserable room air season. “When business gets tough, you've got to get smarter by refocusing your energies on profitability and store level execution. You focus on selling extended warranties and accessories, and you turn every shopper into a customer.”
Ed Kelly, president and director of the $8 billion Nationwide Marketing Group, said overall his 2,400 member dealers “seemed to be real happy” with their holiday sales results, despite a pre-Christmas softening. “We had a nice sales increase, with majors up about 6 percent over last year and CE up considerably more,” he said. But business began to “flatten out a little bit” the week before Christmas, leaving dealers hoping that sales would pick up in the days leading up to the holiday.
It was no such luck for some national chains. While category leaders on CE fiscal calendars like Best Buy and Circuit City won't be reporting their year-end results until this week, OfficeMax said its retail sales and gross margin during the end-of-year holiday season were weaker than expected due to lower traffic.
Wal-Mart stuck to its projected December comp sale gains of between 1 percent and 3 percent — its lowest monthly sales forecast in 19 months.