NEW YORK — Sometimes, the devil is in the deals.
Americans shopped the winter clearance racks in January, resulting in strong sales during the month for retailers. But spending is expected to slow as the deals dry up heading into the spring and Americans digest rising gas prices and a 2 percent payroll tax hike that started in January.
Noelle Perillo, 34, was certainly lured in by deals last month. She said that she spent a total of $100 in January on deeply discounted holiday ornaments, home items and clothes for her toddler son. But she also said her spending may slow in the months ahead.
“I have what I need, and I am kind of shopped out. I’m set for now,” said Perillo, a freelance public relations consultant who lives in Silver Springs, Md. “I am optimistic that things will improve but when I hear things like gas prices spiking, that’s a concern.”
Overall, 20 retailers reported on Thursday that revenue at stores open at least a year – an indicator of a store’s health – rose an average of 5.1 percent, according to the International Council of Shopping Centers. That’s above the trade group’s 3 percent estimate and the 4.5 percent increase posted in December. It also marks the highest reading since last August when the figure was up 6 percent.
Only a small group of stores that represent about 13 percent of the $2.4 trillion U.S. retail industry report monthly revenue. But the data offers a snapshot of consumer spending, which has been heavily influenced by big discounts during the economic downturn.
Retailers are coming off a ho-hum holiday season in which they had to do a lot of discounting to get shoppers to buy. And January, which marks the end of retailers’ fourth quarter, typically is the time when stores have clearance sales on winter merchandise to make room for spring items.
But once the clearance goods disappeared last month, so did shoppers. Analysts said the absence of big discounts – coupled with gas prices that have risen for the past 20 days and the higher payroll tax – caused sales to taper off in the last week or so of the month. Such pressures also hurt consumer confidence last month, which fell to the lowest reading in 14 months, according to the Conference Board.
Cato Corp., which sells women’s and girls’ clothing, said sales worsened throughout the month because of delays in shoppers’ tax refunds and the hit to their income from higher payroll taxes. As a result, the company, which runs about 1,300 stores in the U.S., said revenue dropped 12 percent in January.
“Sales at the beginning of the month were in line with our year-to-date-trend,” John Cato, CEO of Cato Corp., said in a statement. “However sales at the end of the month were significantly worse than trend. We think this was primarily due to the timing of tax refunds and the effect of higher payroll taxes.”
Overall, January was good for most retailers, though.
Macy’s, which runs Bloomingdale’s and Macy’s stores, said revenue rose 11.7 percent in January, nearly doubling the 6.4 percent increase analysts polled by Thomson Reuters had expected. And the retailer raised its fourth-quarter adjusted earnings forecast due to its strong performance in January.
Even Gap Inc., the owner of the Gap, Old Navy and Banana Republic chains that has struggled to regain its relevance, said its January revenue rose 8 percent on strength in its North American stores. That’s above the increase of 4 percent Wall Street expected.
Meanwhile, Target Corp., a discounter that sells everything from clothes to home goods to groceries, reported a solid 3.1 percent increase in revenue, helped by strong sales of clearance items. That beat the 1.7 percent estimate from Wall Street.
Despite the strong showing, Gregg Steinhafel, Target’s CEO, said its customers “continue to shop with discipline in the face of a slow economic recovery and new pressures, including recent payroll tax increases.”
As a result, Steinhafel said Target remains “focused on providing unbeatable value combined with a superior guest experience in both our stores and digital channels.”
Going forward, analyst said that retailers may have a tough time luring in shoppers.
“Consumers were shopping and hunting for those clearance items,” said Michael Niemira, chief economist at the ICSC, the trade group. “Despite the strong reading, January may be one of the highest points of the year.”