MasterCard Sees Solid Rise Of 8.1% in Holiday Spending

By STEPHANIE KANG, ANN ZIMMERMAN and ELLEN BYRON
THE WALL STREET JOURNAL
Mon, December 27, 2004
 

Excerpt (May need subscription to view):
 

Better late than never.

Despite worries that holiday sales had lost steam after a roaring first-day start, consumers came through after all: Holiday spending was a healthy 8.1% ahead of last year, according to one early projection of national retail spending. Spending by higher-income consumers drove the gains. Sales at apparel and home-furnishings stores were especially strong, while sales of books, music and videos inched up.

The projection, compiled by SpendingPulse, a retail sales service from MasterCard Advisors, a consulting unit of MasterCard International, is rosier than holiday expectations inside the retail industry. The National Retail Federation is looking for a 4.5% gain for the season.

Several factors explain the difference: The MasterCard Advisors data reflects both online sales and sales of gift cards; the NRF only counts some online sales, and it doesn't count sales of gift cards until the cards are redeemed. The MasterCard numbers are adjusted to eliminate effects of new-card usage and the general shift in spending to credit from cash. Last year, the MasterCard unit projected a 6.5% gain; the NRF reported a 5.1% gain.

Holiday retail sales on the Internet are expected to top earlier projections of $15.5 billion this year, up 28% from the $12.3 billion consumers spent online in the same period of 2003, according to comScore Networks Inc., a Reston, Va., market-research firm. "We went from expecting a solid season to having our expectations exceeded," says Dan Hess, a comScore senior vice president.

Another factor contributing to this year's strong numbers are the two extra shopping days between Thanksgiving and Christmas -- a gift to shoppers who hold off until the last minute. Many retailers and analysts acknowledge the significance of late-season spending on the numbers this year. "We started out soft, but finished on strong footing," says Michael Niemira, chief economist and director of research at the International Council of Shopping Centers.

Many late shoppers were big spenders. According to SpendingPulse, sales above $1,000 increased 13.5% from last year, probably driven by high-end purchases from luxury brands. Transactions between $500 and $999 ticked up 6.6%. Luxury goods, from gourmet foods to high-end accessories, have been standouts this year.

Coach Inc. yesterday said it is looking for a rise in holiday sales of 25% and a same-store increase in the low teens. Chief Executive Lew Frankfort credits demand for "products with innovation and relevance" -- be it a $798 ostrich-feather evening bag (Coach sold out of them) or a hot new gadget. "You can get a piece of the good life for a few hundred dollars, whether it's a Coach bag, a plasma-screen television or a Mini iPod," says Mr. Frankfort. "It's accessible luxury."

But gas prices are up 30% this year -- which had a particularly strong effect on consumers outside the high end. "Clearly this has impacted lower-income wallets," MasterCard Advisors Vice President Brad Furman said. Sales between $100 and $499, and below $99, posted the smallest gains, at 5.4% and 5.8% respectively."

The divided picture was evident at mass merchants, which in some cases registered their best gains in higher-priced categories such as electronics. At the end of the Thanksgiving weekend, Wal-Mart Stores Inc., the world's largest retailer, tempered an earlier forecast of 2% to 4% gains to a more-modest rise of 1% to 3% in December for stores open at least a year. As it headed into the last week of shopping, however, Wal-Mart says it saw store traffic pick up.

At 3 p.m. on Christmas Eve, for example, the parking lot at a Wal-Mart discount center in North Dallas was completely full. While some customers were stocking up on paper towels and other supplies, most baskets were overflowing with flat-panel televisions, DVD players, digital cameras and toys.

Inside, customers crowded around the bin filled with $5 DVDs; men were lined up at the jewelry counter. Lines were backed up at the cash registers. One shopper tried to use a self-checkout register, but it wouldn't take her money: its internal cash-collection apparatus was full.

Sears, Roebuck & Co., of Hoffman Estates, Ill., said its stores were generally pleased with the strong customer traffic in the week leading up to Christmas. Electronics, tools and apparel were among the most popular purchases in the final days of the holiday season, according to a Sears spokeswoman.

A lack of must-have toys like Tickle Me Elmo meant toy spending rose just 1% this year, according to the SpendingPulse data. Spending at book, music and video stores, along with sporting-goods retailers, showed meager gains of 0.5% and 2.9%.

Consumer electronics grew 4.2%, driven by sales of Apple's iPod player and digital cameras. Apparel and home furnishings retailers saw the strongest spending growth, up 9.8% and 9.7%, respectively. Fur-trimmed sweaters, boots and cashmere were strong sellers, as were modish iPod holders.

Regional spending mirrored the economic recovery that started about 18 months ago, MasterCard's Mr. Furman says. "The coasts recovered first, so last year their spending was stronger," Mr. Furman said. "This year the rest of the country caught up."