Jeff Green and Lindsey Rupp/Bloomberg BusinessWeek—The list of U.S. companies that didn’t get what they wanted for Christmas is growing.
United Parcel Service Inc. (UPS:US) became the latest when it said yesterday that a crush of last-minute orders resulted in higher costs and lower-than-expected earnings. Earlier this week, Best Buy Co. said holiday sales fell, while Target Corp. (TGT:US)’s Christmas was marred by a security breach.
Businesses were plagued by ills ranging from hackers to brutal winter weather and competition from Amazon.com Inc. (AMZN:US) Add a lack of must-haves in fashion and shoppers who preferred to buy via mobile devices, and the holiday season was more coal in the stockings than presents under the tree for many retailers.
“It was a perfect storm of issues this Christmas,” Dorothy Lakner, a New York-based analyst at Topeka Capital Markets, said in a phone interview yesterday. “I can’t remember a holiday season where it started so early. Retailers started promoting Black Friday at the beginning of November. You could make the argument that people spent in November and they were spent out in December.”
Customer traffic in the last two months of the year declined 15 percent from the same period in 2012, said ShopperTrak, a Chicago-based researcher.
Shoppers such as Karie Zipper help explain why. The married mother of two daughters said she did about 80 percent of her shopping online, much of it with Amazon, and about half of that was from her iPhone or iPad. Five years ago, she did about a third less of her shopping over the Internet and almost none from a mobile device.
Zipper eschewed the throngs on Black Friday — the day after Thanksgiving and unofficial start of the holiday spending season — for bargains on Cyber Monday. With the deals, she says she bought more items than last year and spent less.
“I don’t actually go out on Black Friday because I don’t want to deal with the crowds,” the 38-year-old owner of a home-based nutrition business in Aldie, Virginia, said in an interview.
Another characteristic of the past season were the last-minute shoppers who caught Atlanta-based UPS off guard, said Jeff Green, a retail consultant from Phoenix.
The crunch forced UPS, which prepares year-round for the holiday season, to hire 85,000 temporary workers, 55 percent more than planned. The higher costs led to preliminary fourth-quarter earnings (UPS:US) that trailed analysts’ estimates.
People were waiting to see when they could get the best deals, Green said. He was in stores observing shopping habits: Customers would go right to the doorbusters retailers use to get people inside their stores, and leave without buying anything else, he said.
“Everyone was a value shopper this year,” Green said. “Even the luxury shopper didn’t spend as much. The biggest surprise was probably how much of it was done from mobile devices.”
The rise of the Amazon shopper is raising questions about whether the consumer shift online has led to a “tipping point” for stores, Goldman Sachs Group Inc. analysts Lindsay Drucker Mann, Taposh Bari, Stephen Grambling and Tiffany Hagge wrote on Jan. 15.
“Many reported the cadence of business deteriorated across the quarter, and that promotions ahead of Christmas intensified versus Black Friday,” according to the report.
One victim of the shift was Richfield, Minnesota-based Best Buy (BBY:US), the world’s largest electronics chain. The decline in holiday sales triggered the biggest drop in the stock in more than a decade on Jan. 16, raising doubts over Chief Executive Officer Hubert Joly’s turnaround strategy.
Even though the chain slashed prices, revenue from outlets open at least 14 months and the Web fell 0.9 percent in the nine weeks ended Jan. 4.
By shopping with Seattle-based Amazon, customers may have been able to stick closer to their budgets and less likely to make impulse purchases, said Leon Nicholas, senior vice president at Kantar Retail in Boston.
“I might have gone into a store intended to spend $100 and I spent $125,” he said. “On Amazon I may intend to spend $100 and I spend $100. There’s not as much temptation.”
The Christmas gloom has hit retailers of all stripes. L Brands Inc. (LB:US), owner of the Victoria’s Secret brand, and discounter Family Dollar Stores Inc. (FDO:US) cut profit forecasts Jan. 9 after disappointing December sales.
Early results show that the season’s discounts — as steep as 75 percent off at luxury department-store chain Neiman Marcus Group LLC — didn’t generate sufficient traffic or spur enough purchases of full-priced merchandise to make up for the lost revenue.
“These in-store promotions where I’m trying to incent you to do something you probably wouldn’t do otherwise isn’t a sustainable strategy,” Kantar’s Nicholas said. “We’re going to have to step back as an industry and do some real soul-searching about what a store is for.”
Hacker attacks made things worse for Neiman Marcus and discount chain Target, siphoning credit-card data. Target said Jan. 10 that the security breach affected more people and information than previously thought. Sales at U.S. stores open at least a year were “meaningfully weaker” after the data theft was announced, the company said.
Merchandise purchased via personal computers in November and December gained 10 percent from the same period a year earlier, ComScore Inc. said Jan. 7. Sales of apparel and accessories rose the most, followed by consumer electronics including smartphones and computer hardware such as tablets, the researcher said.
Zipper, the Virginia mom, said she bought her 8-year-old daughter a Kindle Fire HD using a 20 percent discount and the $50 she saved opening an Amazon credit card: As a result, the $169 tablet cost her $89, she said. She also picked up two American Girl dolls for about $60 each, complete with extra outfits and accessories, for less than the usual $110 price for the doll alone, she said.
“I don’t even buy in the store until I look online anymore, even if I plan to buy something in the store,” said Zipper, who starts prowling the Web in October for the first signs of upcoming deals. “But often, my husband and I might be driving in my car and I see something on my phone and I buy it.”