Target, other retailers face tough road ahead

Target's sales at stores open at least a year fell 4.1 percent. The retailer noted that sales picked up steam in the last two weeks of December, but it said the overall sales drop was in line with its expectations and those of many industry analysts.

"It wasn't a great holiday season. No great surprise," said Dave Heupel, a retail analyst at Thrivent Financial for Lutherans. "It was a tough holiday for them. I think their margins are going to look pretty weak, given some of the discounting we've seen."

During the month, Target said it cut prices to gain market share and reduce inventories. Those markdowns, it warned, will erode its profits for the quarter. How much will become clear when Target reports its quarterly earnings next month. But the sales results were encouraging to investors who pushed targets share price up 1 percent.

Target was not alone, to be sure, in reporting a year-over-year sales drop in December. A host of other retailers reported sales were down, too. Even Wal-Mart disappointed investors with a sales increase -- about two percent -- that was below Wall Street expectations, and the stock fell 7 percent. In all, the holiday season was the weakest since at least 1969.

As long as the economy remains in a funk, Target seems destined to lose market share to Wal-Mart and other competitors better known for delivering basic products at low-low prices. Target has insisted it'll match Wal-Mart on price. But Target sells much more apparel, home furnishings and other things people can do without in hard times.

Retail consultant Howard Davidowitz said Target is not the first place shoppers think of when they want to save money, especially on food. Davidowitz said most shoppers are going to head to Wal-Mart.

"Target continues to not have the powerful value image," Davidowitz said. "They continue to not have the food penetration. They will continue to lose market share."

And Davidowitz doesn't see things turning around for Target anytime soon.

"Long-term, I see this economy heading down," he said. "I see the consumer continuing to trade down. That's not a good position for Target. The winners are Family Dollar, Dollar Tree, CostCo. The winner is not Target."

Industry analysts expect retailers may close thousands of stores this year, as they try to adjust to a steady drop in consumer spending.

Macy's was the latest retailer to announce store closings. It'll be shuttering 11 locations including its store at the Brookdale Mall in Brooklyn Center.

Richard Grones of Cambridge Commercial Realty, said the closing of the Brookdale Macy's was not unexpected.

"It's not a surprise," Grones said. "I think they probably have to feel lucky they kept Macy's as long as they have. I think it has been a nonperforming store for a number of years."

A Macy's spokeswoman declined to be recorded for broadcast, but she confirmed the Brookdale store's sales and profits were disappointing. She wouldn't say how disappointing, however.

Brookdale will have a final clearance sale on Wednesday, Jan. 14.

Many people speculate that the lightly-shopped Macy's store in downtown St. Paul could be closing soon. But Macy's insists it plans to keep the St. Paul store open, along with six other Macy's locations in the Twin Cities.

In another downsizing development on the Twin Cities retail scene, Best Buy announced about 500 employees at its corporate headquarters have signaled they want to accept buyouts. It's not clear whether that will be enough to prevent layoffs.

There has been one apparent bright spot in retail. Online merchant Amazon bragged last month that this was the company's best holiday shopping season ever.

But overall, retail consultant Howard Davidowitz said holiday sales were disappointing online as well as in stores. Davidowitz said he was shocked by the drop in e-commerce.

"The falloff was enormous," Davidowitz said. "The global performance of online sales went from a six-year run of 20 to 25 percent a year to flat to down two [percent], reflecting the weakness of the consumer." Davidowitz noted that online retail still has a pretty limited impact on most retailer's total sales. Online retail sales account for just between 3 and 4 percent of total retail sales. So, most merchants will not find their salvation on the Internet. Not anytime soon, at least.

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