Holiday spending disappoints retailers

American consumers, uneasy about the economy and unimpressed by the merchandise in stores, delivered the bleak holiday shopping season retailers had expected, if not feared, according to one early but influential projection that was delivered Tuesday.

Spending between Thanksgiving and Christmas rose just 3.6 percent over last year, the weakest performance in at least four years, according to MasterCard Advisors, a division of the credit card company. By comparison, sales grew 6.6 percent in 2006, and 8 percent in 2005.

"There was not a recipe for a pickup in sales growth," said Michael McNamara, vice president of research and analysis at MasterCard Advisors, citing higher gas prices, a slowing housing market and a tight credit market.

Data based

on purchases

Strong demand at the start of the season for a handful of must-have electronics, such as digital frames and portable GPS navigation systems, trailed off in December. And robust sales of luxury products could not make up for sluggish sales of jewelry and women's clothing.

What eventually did sell generally was marked down - once, if not twice - which could hurt retailers' profits in the final three months of year. "Stores are buying those sales at a cost," said Sherif Mityas, a partner at the consulting firm A.T. Kearney, who specializes in retailing.

MasterCard's SpendingPulse data, scheduled to be released today, cover the 32-day period between Nov. 23 and Dec. 24. It is based on purchases made by more than 300 million MasterCard debit and credit card users and broader estimates of spending with cash and checks. It encompasses sales at stores, on the Internet, of gift cards, gasoline and meals at restaurants.

Unimpressed

by resultsThe final numbers are in line with MasterCard's already modest expectations, which were reduced in the middle of the season. But retail analysts and economists, who scrutinize holiday spending for clues about the health of the American economy, are unlikely to be impressed by the results.

Eboni Jones, 32, of Windsor, Conn., epitomized the problem for stores.

A phone company manager, she waited until this past weekend to make a single purchase at a major chain store this season, favoring Web retailers and designer outlet stores with deeper bargains.

"I am on a tighter budget than I've ever been," said Jones, who walked into the Macy's at Westfarms Mall in Farmington, Conn., on Sunday morning to take advantage of a sale.

In the past, she easily spent $100 each on her six nieces and nephews. This year, it was more like $50. "If it's not on sale, I won't buy it," Jones said.

Online spending increasesMasterCard found that onine spending rose 22.4 percent, a healthy, if not robust, showing, given fears that Web purchases would slow after a decade of impressive growth.

Clothing sales rose a meager 1.4 percent, but there was a stark split between genders. Sales for women's apparel dropped 2.4 percent. Sales for men's apparel rose 2.3 percent. Analysts said women complained of dreary fashions.

"Even when the dust settles, women's clothing is likely to be one of the weakest categories in retail this season," said John D. Morris, senior retail analyst at Wachovia Securities.

Luxury purchases rose 7.1 percent, as the nation's well-heeled splurged on $600 Marc Jacobs trench coats and $800 Christian Louboutin shoes. Footwear, at all prices, proved a bright spot for the clothing industry, with sales surging 6 percent.

Weak sales of clothing left retailers jostling for the deepest if not most desperate discounts over the last weekend to drum up interest from consumers. Martin & Osa knocked 50 percent off women's wool sweaters. Gymboree issued $25 coupons to shoppers who spent $50 on its children's clothing. Even the markdown-averse Abercrombie & Fitch dusted off its clearance signs, selling $99 faux-fur trimmed-down coats for $79.

The American consumer has perplexed analysts this season. Retail experts confidently predicted that shoppers, uneasy about the economy, would trade down from midprice chains, such as Macy's and Nordstrom, to discounters with steeper discounts.

To a certain degree, they did, mobbing low-priced chains such as T.J Maxx, and Marshall's. But the discount retailer Target has struggled this season. On Tuesday, it said its sales could fall by 1 percent in December compared with last year, an anomaly for a retailer accustomed to at least 4 percent monthly sales growth over the last three years.

Wal-Mart,

Best BuyIn the end, analysts said, the biggest winners are likely to be Wal-Mart, which emerged as the undisputed low-price leader this season, and Best Buy, which became the destination for competitively priced electronics.

Much of this season's action appeared to unfold on the Web, which spared consumers a $3-a-gallon drive to the mall. Like MasterCard, ComScore, a research firm, found that online spending rose steadily to $26.3 billion.

ComScore measured spending during the 51 days between Nov. 1 and Dec. 21. The biggest day for online shopping was Monday, Dec. 10 ($881 million), not the Monday after Thanksgiving ($733 million), known as Cyber Monday in the retail world, because consumers typically flock to the Web at work after a holiday weekend of browsing.

Unsatisfied with sales so far, dozens of retailers, from the high-end to the low, will start slashing prices this morning. Kohl's is scheduled to hold a 60- to 70-percent off sale; Macy's is knocking down prices by 50 percent to 70 percent and dangling a $10 coupon for purchases of $25 or more; clothing will be 50 percent off at Saks Fifth Avenue between 8 a.m. and noon; and Toys "R" Us is offering a buy-one-get-one-half-off promotion.