Target mounted an aggressive marketing campaign for a collection of products by 24 top designers, including Jason Wu and Oscar de la Renta. But the retailer is reducing prices by 50 percent for the line, shown here at the Target on Lake Street and Hiawatha Avenue in Minneapolis.

Marlin Levison, Star Tribune

A retail store at the CambridgeSide Galleria mall in Cambridge, Mass., advertised holiday sale, Monday, Dec. 24, 2012.

Michael Dwyer, Associated Press

For retailers, little cheer after promising start

  • Article by: THOMAS LEE
  • Star Tribune
  • December 24, 2012 - 9:27 PM

For retailers looking for extra holiday cheer, this year's season has quickly gone from ho ho ho to ho ho hum.

With the arrival of Christmas today, retailers likely will see holiday sales grow a respectable 3 to 4 percent over last year. But given the improving economy and job market, retailers and analysts had expected a stronger performance.

Blame the devastation of superstorm Sandy, the looming fiscal cliff, or cost-conscious consumers still scarred from the Great Recession. Or all of the above, analysts say.

"It's been disappointing to me," said Arizona-based analyst Jeff Green, who expected 4 to 6 percent growth. "I thought it was going to be better than it actually is. Since Black Friday, it's been a quiet season."

There's the possibility of a last-minute rush that could boost the sales tally, of course, but signs are pointing toward a muted finish. ShopperTrak, which monitors foot traffic at malls and shopping centers around the country, recently lowered its holiday sales forecast to a 2.5 percent increase over the same period a year ago, down from its earlier prediction of a 3.3 percent gain.

Major retailers have been trying to adjust, as the holidays account for 20 to 40 percent of their annual sales. Wal-Mart, the world's largest retailer, tempered expectations among its investors who were hoping for a robust finish. Meanwhile, Macy's Inc. kept its stores open around the clock -- 65 hours -- from Friday through Sunday, a sign the retailer is trying to move merchandise that has been stuck on shelves for weeks.

And then there was the much-anticipated Target-Neiman Marcus collection of 50 products by 24 top designers, including Jason Wu, Oscar de la Renta, Rodarte and Derek Lam. Target said last week that it will reduce prices by 50 percent for the line, a rare setback to the Minneapolis-based retailer, which had mounted an aggressive marketing campaign to support the collection.

Executives from Target and Neiman Marcus promoted the collaboration as the perfect blend of Target's cheap chic and Neiman's luxury brand, anticipating a robust crossover appeal for shoppers.

The collection, which ranged from $7.99 to $499.99, might have been a bargain at Neiman Marcus but too expensive for a Target store, analysts said.

"Target priced themselves out of the market," said David Strasser, a retail analyst with Janney Capital Management.

Target spokesman Katie Boylan said the collection attracted millions of shoppers and helped distinguish the retailer from holiday competitors.

"It was a new program and we made several adjustments to make sure guests had a great experience, including increasing our inventory levels and applying quantity limitations," Boylan wrote in an e-mail. "As with any new initiative, we'll carefully evaluate the results of this program to help inform our future plans."

'I wasn't wowed'

Jamie Kvamme should have been Target's dream customer for the initiative with Neiman. The 26-year-old Minneapolis resident is young, fashion-conscious (she likes to snap photos of her outfits and post them on her blog) and, thanks to her new marriage and job, a whole lot better off financially than last year.

But when Kvamme checked out Target's holiday collaboration with Neiman Marcus, she said she was underwhelmed.

"I wasn't wowed by anything to pay the extra price," said Kvamme, a social media manager at the University of Minnesota's Carlson School of Management. "We have more money to spend and we actually spent less. There weren't things on my list that were must-have."

Despite the general sense of disappointment, there were bright spots in the season. E-commerce sales jumped 16 percent to $38.7 billion between Nov. 1 and Dec. 21, according to comScore. The research firm reported a 15 percent gain last year.

Target and Best Buy, which have struggled with online sales in recent years, apparently did a much better job this season, analysts say.

"They are getting their act together" with e-commerce, said Collin Brinkman, a retail analyst with Deloitte LLP. And the stronger ones "are reaping the benefits."

Target suffered embarrassing failures with its website during last year's Missoni launch, which included 150 items co-created with the venerable Italian fashion house. This year, Target not only bolstered its website but also rolled out a full-fledged digital campaign, including interactive ads on bus shelters, smartphone-friendly QR codes, and free in-store Wi-Fi.

"This is a big step for us digitally," CEO Gregg Steinhafel said last month. "We are really leaning forward into mobile space and Our [digital] business is going to outperform the company and outperform the industry."

Best Buy officials also touted their digital efforts. broke sales and traffic records on Thanksgiving and Black Friday. Online sales on Nov. 20, the start of its early-access online event for Reward Zone members, jumped about 400 percent from the same day the previous year.

Best Buy declined to release specific sales figures, and referred the Star Tribune to third parties that praised the performance of its website, social media efforts and mobile apps.

For most retailers, the holiday retail season was all about finding cheer wherever it could be seen, said Brinkman, the Deloitte analyst. Worries that a solution won't be reached on the so-called fiscal cliff -- the looming federal tax increases and spending cuts that could lead to a recession -- made some shoppers more cautious. Superstorm Sandy, in turn, forced retailers to close many East Coast stores and thus lose sales.

In the end, Brinkman said, business was "good but not great, when you consider the economy's improvement."

Thomas Lee • 612-673-4113

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