Retail Sales: November Stole the Show from December

Even though U.S. shoppers piled up the presents under their Christmas trees, retailers are finding themselves a bit disappointed by their holiday haul, a government report revealed Friday.

The Commerce Department's retail and food services sales tally for December rose to $380.9 billion, up 7.9% from December 2009, but up just 0.6% from November. Excluding auto sales, totals were up 6.7% from 2009 and 0.5% from the month before, slightly less than analysts had expected.

The Commerce Department's tally is the most complete picture of the retail sector, including gas, food and auto sales, as well as the results from Walmart Stores (WMT), the world's largest retailer, which doesn't publicly report monthly sales.

"One-Time Binge"?

The numbers weren't a surprise: Industry observers were disappointed last week when major retailers reported that December sales were weaker than expected due to bad weather and consumers who had front-loaded their holiday shopping, spending heavily during late November's Black Friday sales. Merchants now worry that the December numbers are a sign that shoppers will close their wallets again in 2011.

"I don't think people believed that November's growth was sustainable, not any indication on a macro basis that the consumer is really back," says Kevin Regan, senior managing director of FTI Consulting. The holiday season was the best since 2006, but shoppers are still paying down debt and trimming spending while they wait for a significant improvement in the economy, he said.

November sales could have been "a one-time binge" as consumers chose to splurge on the holidays before returning to paying down debt in 2011, said Regan.

Some gift-related segments showed a loss of momentum going into the final stretch of the holiday. For example clothing stores, which were up 7.4% compared to December 2009, dipped slightly from November's totals, down 0.2%. And the inclement winter weather had a silver lining for hardware stores, which were up 2% in December over the month before, and 13.1% over the same month a year earlier.

Healthy Increase for E-Tailers

"The December retail sales report had Mother Nature's paw print all over it," said Brian Sozzi, analyst at Wall Street Strategies. The weather had a part in holding down some of the momentum retail that had been seen since back-to-school season, but just how much of the slack was weather-related, as opposed to "early holiday season spending hangover" won't become clear until we see what shoppers do in coming months, he said in a note to investors.

A few segments showed signs of continued strength: Auto dealers' sales were up 14.7% from December 2009 and 1.1% higher than in November, a sign of Detroit's continued climb from the depths. And nonstore retailers -- a segment mainly made of up of online stores -- saw sales rise 15% year-over-year and 2.6% over the month before, the biggest monthly jump for any retail segment, as shoppers continued to adopt e-tailing.

But the retail recovery remains an iffy proposition, according to attendees at the recently concluded annual meeting of the National Retail Federation, the industry's trade group.

The Rich Are Spending Again

The affluent consumer is shopping again, as evidenced by Tiffany (TIF) raising its guidance earlier in the week. But mass consumers are still counting their pennies and worrying about the state of the job and housing markets, said merchants.

The split was clear in last week's major merchant announcements, when luxury retailers such as Saks (SKS) and Nordstrom (JWN) posted strong sales gains, while mass merchants such as Target (TGT) and BJ's Wholesale Club (BJ) were disappointed.

"The economy is starting to grow again, and that's fantastic, but it's broken into two economies," says Matt Rubel CEO of Collective Brands (PSS) the parent of Payless Shoesource. "The upper end is doing well, but we need to create jobs for the mass and base consumer who has 15% unemployment, not 9.5%."

There is still "an air of caution out there," says Regan. Gas prices are rising, which will put a damper on spending in coming months, as consumers have to choose between shopping and driving. Inflation in areas such as food and clothing will also put pressure on household budgets in early 2011.

"Things have not improved enough for consumers to do more than fix their balance sheet," Regan says. "The consumer wanted to put some presents under the Christmas tree, but I think they are going to bear down."