Transcripts

Are Retail Holiday Discounts Getting Too Deep?

SUSIE GHARIB: November was an ugly month for the nation's retailers, suggesting this holiday season may be downright awful. Target, Macy's, JC Penney and Gap all posted double-digit sales declines last month, despite deep discounts on merchandise. Only Wal-Mart bucked that trend with a stronger than expected sales increase. But as Suzanne Pratt reports, markdowns may hurt the bottom line for many retailers.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: No matter how you ring it up, November was the worst month on record for the nation's retailers. Even though black Friday promotions helped bring in shoppers, that wasn't enough to make up for dismal sales during the rest of the month. UBS retail analyst Roxanne Meyer says consumers are jittery about their jobs and the diminished value of their homes.

ROXANNE MEYER, SPECIALTY RETAIL ANALYST, UBS: The consumer is pulling back in full force. They are not spending on discretionary items unless they absolutely have to have it or it fits within their budget.

PRATT: Wal-Mart is one of the few stores that seems to fit most budgets. It posted a more than 3 percent jump in sales last month, saying lower gas prices helped. Thomson Reuters analyst Jharonne Martis says Wal- Mart's solid November sales bode well for the retail giant's fourth quarter profits.

JHARONNE MARTIS, SR. RESEARCH ANALYST, THOMSON REUTERS: Wal-Mart is the only retailer that when you look at their same store sales and you compare that to their fourth quarter revenue estimates, it's the only retailer that's on track to actually match fourth quarter revenue estimates.

PRATT: Analysts say other stores will be lucky to generate any profits in the fourth quarter. According to Thomson Reuters, retail companies in the S&P 500 are likely to post on average a 17 percent drop in fourth quarter earnings. That compares to a 7 percent decline a year ago. Analysts explain so many retailers have had to deeply discount their merchandise in order to get shoppers to spend. And the prices are in some cases so low that it's extremely difficult to maintain profit margins.

MEYER: Retailers need to clear through this inventory so that they can start off spring cleanly. So they need to clear it at any cost and that will have quite a dramatic impact on margins this quarter.

PRATT: Analysts don't expect the story for most retailers to improve before the second half of next year at the earliest. That's because they say consumers are likely to remain cash-strapped and there don't appear to be any new fashion trends on the horizon. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.