Review of 1999 Holiday Season

Written by Michael Baker

An overview of December retail sales results from the perspective of total sales, same-store sales and sales per square foot.

Sales results by region and store type.

The daily distribution of spending by mall shoppers over the holiday season.

Online shopping
REVIEW OF 1999 HOLIDAY SEASON
Each year, ICSC begins to track mall sales on a weekly basis beginning immediately after Thanksgiving and continuing through to Christmas. Although a large proportion of spending occurs between “Black Friday” and Christmas Eve, some consumers do a significant amount of holiday shopping well before Thanksgiving and others delay purchases to take advantage of post-Christmas promotions. Consequently, the definition of “holiday season” is not clear-cut. In this white paper we choose to use December sales as a proxy for “holiday” sales, partly because December contains the most number of days in anyone's definition of the holiday season.

OVERVIEW OF THE RESULTS
According to the broadest measure of retail spending—the U.S. Census Bureau’s Monthly Retail Trade Survey—the 1999 holiday season was easily the strongest of the decade. U.S. consumers purchased a record $253.3 billion worth of non-automotive retail goods in December alone, which represented a seasonally adjusted increase of 10.2% over December 1998. Apart from 1992 when the economy was on the rebound from recession and retail sales jumped 7.1%, no other year in the 1990s even came close to 1999’s performance.

(Please see Figure 1 below.) Figure 1 also shows that the 1999 increase was by far the strongest in inflation-adjusted terms, beating out 1992 by a full four percentage points. Although the Census Bureau numbers are a good measure of the level of additional spending by consumers, they are not the end of the story because they don’t speak to changes in the productivity of retail space. For example, same-store sales indices such as LJR Redbook’s Retailer Sales and ICSC’s Monthly Department Store Sales Report focus on changes over time in productivity at identical stores, while ICSC’s Monthly Mall Merchandise Index looks at productivity changes at an identical group of centers. The December results from these and other indices are shown in Table 1. (Please see Table 1 below.)

The same-store sales indices (excluding ICSC’s Monthly Department Store Sales Report) range from +5.1% to +6.6%. Sales per square foot for non-anchor tenants in ICSC’s Monthly Mall Merchandise Index increased by 2.4%. When comparing results for the Index and the various same-store sales reports, the reader should bear in mind the following:

For these reasons the reader should exercise care in using the indices to draw conclusions about relative performance across retail or shopping center formats. However, the data suggest that it was a strong holiday season overall, with pockets of weakness in some specialty-store categories and department stores. This is discussed further below in the section headed “Merchandise Category Sales.”

The two ICSC reports also provide sales data by U.S. Census Bureau division. The divisions of greatest strength for mall specialty retailers were the Mountain States (+5.4%) and New England (+4.2%).

For department stores, the West was the dominant region of the country. Same-store sales in its two Census Bureau divisions—the Pacific and Mountain States—increased by 3.8% and 3.5%, respectively. (Please see Table 2 below.)

MERCHANDISE CATEGORY SALES
Figures 2, 3 and 4 look at December category sales from three different perspectives. Figure 2 shows the Census Bureau total sales concept, Figure 3 shows same-store sales and Figure 4 shows sales per square foot for non-anchor mall tenants. (Please see Figures 2, 3 and 4 below.)

Taken together, the three sets of numbers convey the following picture—the major store types that did particularly well during the 1999 holiday season were drug stores, discount department stores, warehouse clubs, specialty apparel and accessories (excluding children’s apparel), building materials/home improvement, home electronics (though less so in the mall) and jewelry. Categories that didn’t perform as well as had been hoped were shoes, home furniture & furnishings and national chains. Although an exhaustive review of retail categories is beyond the scope of this paper, results from some key categories follow.

APPAREL AND FOOTWEAR SPECIALTY STORES Apparel specialty stores achieved mid-single digit total sales and same-store sales gains in December (Figures 2 and 3). In malls, sales per square foot for the apparel category increased 2.1% (Figure 4), with results varying significantly across sub-categories. According to the ICSC Monthly Mall Merchandise Index, women’s ready to wear (+3.8%) and the accessories segments—women’s accessories and specialties (+2.3%) and apparel & accessories miscellaneous (+8.0%)—performed strongly, while men’s apparel (-0.3%), children’s apparel (-7.2%) and family apparel (+0.3%) didn’t do as well. In each of these last three subcategories, December performance was well below the 1999 trend.

Meaningful increases in sales per square foot for family shoes (+5.8%), athletic shoes (+2.4%) and children’s shoes (+9.1%) drove a 3.0% gain for the mall footwear category (Figure 4). It appears that mall stores outperformed non-mall footwear stores in December, since total sales (Figure 2) and same-store sales (Figure 3) in the category were flat.

BUILDING MATERIALS (HOME IMPROVEMENT) Stores in the Census Bureau’s building materials group reported a total sales increase of 8.8% in December (Figure 2). Although only a very small mall segment in square footage terms, home improvement experienced a sales-per-square-foot increase of 22.9% in December, the largest increase of any segment in the Monthly Mall Merchandise Index.

DEPARTMENT STORES
Department store same-store sales increased 2.2%, as noted in Table 1 above. Regional department stores experienced a modest increase, while the national chains experienced a small decline (Figure 3). This has been the pattern for most of the year as the lower-priced end of the department store market continues to struggle in the face of competition from discount department stores.

DISCOUNT DEPARTMENT STORES AND WAREHOUSE CLUBS
These two segments continued to be areas of strength in December (Figures 2 and 3.) The three largest warehouse clubs—BJ’s, Costco and Sam’s—managed a composite same-store sales increase of 16.1% in December, while Wal-Mart led the discount stores with a gain of 7.9%. Its main rivals—Kmart (+5.5%) and Target (+5.6%)—also had solid holiday seasons. Attractive pricing and assortment at these stores continues to make life difficult for their competitors, particularly the national chains.

DRUG STORES
Drug stores achieved a 12.2% total sales gain in December (Figure 2), slightly above their full-year increase of 11.4%. Drug/HBA sales and sales per square foot in malls were flat. However, drug stores are of relatively little importance in malls, accounting for only one percent of tenant space. On the other hand, specialty “personal care” stores that offer HBA-like merchandise are important mall tenants and these experienced a productivity gain of 2.1% in December (Figure 4).

HOME ENTERTAINMENT/ELECTRONICS
Home electronics total sales gained 10.3% (Figure 2). Electronics hardware and software sales were both robust, particularly in the area of DVD players and DVDs. However, sales per square foot in the associated mall category of home entertainment/electronics gained only 1.1% (on sales growth of 8.8% and square footage growth of 7.5%), significantly down on its 1999 full-year trend (+4.1%).

HOME FURNISHINGS
The furniture/home furnishings segment was overshadowed by the home improvement segment all year and December was no exception—while building materials stores experienced an 8.8% gain, furniture/home furnishings sales increased by 5.9% (Figure 2). Mall sales per square foot increased by 0.1% (Figure 4).

JEWELRY
Jewelry—one of the categories most sensitive to general economic conditions—had a fine December, particularly in the mall where sales per square foot increased 14.3% (Figure 4). Mall total sales increased by 21.4% on square footage growth of just 6.2%. Rising interest rates in 1999 failed to dampen sales in this rate-sensitive category.

TOYS
According to unpublished Census Bureau data, year-over-year toy store sales declined by 0.4% in December. Mall toy store sales fell by 1.6%. This is perhaps more indicative of a shift in market share away from toy specialty stores than of a decline in toy sales per se. It may also reflect an increase in the market share of online toy stores, which are not incorporated in the Census Bureau numbers but which earned revenues of close to $600 million in December (compared with about $3.7 billion for conventional toy specialty stores).

HOLIDAY SHOPPING PATTERNS
Consumer spending patterns during the 1999 holiday season were similar to last year, with six of the top seven shopping days occurring in the last week before Christmas. (The only day outside of the week before Christmas that made it into the top seven was Saturday, December 11.)

Figure 5 shows an index of daily sales for non-anchor mall tenants for the period November 26 to December 31, 1999. (Please see Figure 5 below.) The peaks on the graph are the Saturdays before Christmas, with a gradual buildup so that after the 18th—the last Saturday before Christmas—sales hardly fall back at all until Christmas Day itself. Post-Christmas spending was also strong but much less so than the week prior.

ONLINE SHOPPING
Many retailers were hoping to make substantial sales across the Internet during the 1999 holiday season. Much had been made of the problems experienced by shoppers during the 1998 season and, according to many analysts, the 1999 season was to be a make-or-break time in which retailers using the online channel had to prove they could provide shoppers with a satisfying, problem-free shopping experience. Sites had to handle large traffic volumes and be easily navigable, advertised products had to be available for shipping (or the customer notified promptly if this were not the case), and the correct merchandise had to arrive in time for Christmas.

Also, now that many land-based retailers had online channels, industry analysts and the media alike geared up for head-to-head comparisons between the offline/online retailers and pure online retailers. A whole new cottage industry was spawned—newspapers and Wall Street houses allocated substantial sums of money and staff to testing the performance of web sites, making mass purchases, carefully recording delivery times and accuracy of orders, and, finally. . . returning everything to the retailers to find out how easy/difficult it was and whether the money was promptly refunded.

For their part, “pure-play” Internet retailers threw millions of their IPO dollars into advertising their web sites on conventional media, while conventional land-based retailers with online channels began to push their competitive advantages—brand awareness, logistical excellence and, in some instances, making their land-based stores available to accept returned merchandise.

A detailed analysis of the many different studies of the online shopping experience will not be attempted in this white paper. However, the underlying themes of these studies are as follows:

Private companies’ estimates of online sales volumes vary, ranging from as low as $4.4 billion to as high as $11.5 billion, with a median of $7.1 billion. (Please see Table 3.) However, it is important to note that some of the numbers in Table 3 include non-retail items such as travel, event tickets and brokerage fees and cover periods longer than the month of December (in most cases the entire fourth quarter)—therefore, it may be wisest to rely on the U.S. Census Bureau’s recently published fourth quarter estimate of $5.3 billion. This represents 0.6% of total retail sales.

*Figures reflect different definitions of “holiday season.” e.g. Some are for the entire fourth quarter, some include only Thanksgiving to Christmas. Note that figures also include non-retail items such as travel.
Source: eMarketer, 2000

According to PC Data Online/Goldman Sachs, the most important categories were computer hardware/software (about 29% of online sales), toys (13%), travel (12%), electronics (8%) and apparel (7%).⁽¹⁾

As expected, and as Figure 6 indicates, online sales tapered early because of shipping times—the peak day for online sales was December 14⁽²⁾, versus the dual peaks of December 18 and 22 for land-based sales.

¹ Extrapolated from weekly interviews with 3,004 at-home Internet users.
² Stacy Lawrence, “E-Commerce Spotlight: Hard Numbers on e-Christmas 1999” in www.thestandard.com, January 24, 2000.

CONCLUSION
In conclusion, the 1999 holiday season was by some measures the strongest of the decade. The main points:

Looking ahead to the 2000 holiday season, the strength of 1999 holiday sales makes it unlikely that we will see any significant year-over-year sales gain next December. Should the economy continue strong, ICSC expects a relatively small increase or even flat sales on a year-over-year basis. ICSC will shortly (in April) publish another white paper reviewing full-year 1999 retail results.

ICSC Research Advisory Task Force Chair: Michael P. McCarty, Simon Property Group

Vice Chair: Gregory Kerfoot, Sears Roebuck and Co.

Rohan S. Andrew, Urban Retail Properties Co.
David Boxer, The Taubman Company
Robert J. Boyle, Cambridge Shopping Centres Ltd.
James K. Brand, General Growth Properties, Inc.
Steven R. Brown, Cohen & Steers
E. Dan Carroll, Dayton Hudson Corporation
Dougal M. Casey, Clarion Partners
John B. Chapman, HSG/Gould Associates
John Cirillo, Nordstrom, Inc.
David G. Daleiden, Weingarten Realty Investors
Karen L. Gentleman, Gentleman Associates
John H. Haake, Kmart Corporation
Ken Jones, Ryerson Polytechnic University
Michael Kranzdorf, Kranzco Realty Trust
Robert Lie, ING Real Estate
Jonathan Litt, Salomon Smith Barney
William Maher, LaSalle Advisors Limited
William J. McCollum, New England Development
Sharon Peters, Saks Incorporated
Martha S. Peyton, TIAA-CREF
John R. Ragland, The Rouse Company
Subha Ramesh, The Limited, Inc.
Craig R. Schmidt, Merrill Lynch
Douglas V. Schmidt, Best Buy Company
Kenard E. Smith, The May Department Stores Co.
William A. Speer, TrizecHahn Development Corp.
James W. Sullivan, Prudential Securities
Cynthia Ray Walker, Federated Department Stores
Gary T. Weber, J.C. Penney Company, Inc.
Christopher M. Wicker, The Retail Consulting Group
Lori Wittman, Heitman Retail Properties
Cindy Wozny, Deloitte & Touche
Mark Zygmontowicz, Thompson Associates

This ICSC White Paper is published by the International Council of Shopping Centers. The designated Official Member of ICSC member organizations has received a complimentary copy of this report.

William H. McCabe, Jr., Chairman
John T. Riordan, President

Research:
John Konarski III, Senior Staff Vice President
Michael Baker, Assistant Director of Research
David Brand, Research Assistant
Rochelle Cohen, Educational Foundation Coordinator
Jean Lambert, Research Projects Manager
Bindu Nair, Assistant Research Analyst
Susan Pistilli, Manager of Library Services
Veronica Soriano, Associate Research Analyst
Michael Tubridy, Assistant Librarian/Writer

Copyright ©2000 International Council of Shopping Centers. All rights reserved. Protected under Universal Copyright Convention and international conventions. This publication may not be reproduced in whole or in part in any form without written permission of the International Council of Shopping Centers. International Council of Shopping Centers. Printed in the U.S.A.

For further information regarding this White Paper, please contact Michael Baker at ICSC at (703) 549-7404, extension 231.