US retail sales fell for the sixth straight month in December, the first time that this has happened since records began in 1992. IGD's Jamie Trust explores how the leading retailers have fared.

Many retailers were embracing themselves for one of the worst holiday seasons on record, but the 2.7% decline reported by the US Commerce Department was twice as bad as previously predicted.

Furthermore, comments from industry leaders, including Lee Scott, outgoing President & Chief Executive of Wal-Mart Stores Inc., suggest that the decline in the US retail sector shows no sign of holding up any time soon.

The S&P 500 for example - an index consisting of America's 500 largest companies by market capitalisation - experienced one of its worst starts to the year on record, with the market falling 9.4% in the first 12 days of 2009 as stocks tumbled across a number of the leading retailers on the back of lower than expected sales and profit warnings.
 

Unemployment continues to play a major role

	I don't see anything that tells me it's going to turn around quickly. Lee Scott, outgoing President and CEO of Wal-Mart Stores Inc.

Perhaps the biggest factor impacting the US market right now is soaring unemployment. Recent figures suggest that more US workers lost their jobs last year than in any other 12 month period since World War II, with employers axing 2.6 million posts in total. Even more worrying for retailers is how unemployment seems to be accelerating, and the impact that this could have on the retail sector and efforts to kick-start the US economy. US President, Barack Obama, has described the situation as "dire" and something that requires his "urgent and immediate action."

So with this in mind, unsurprisingly the holiday season brought little cheer for most retailers, however, a few positive stories did emerge. Here is our summary of the key Christmas trading period in the US.
 

Wal-Mart underperformed

Many tipped Wal-Mart to come out on top over the holiday season. The Bentonville based retailer was enjoying a strong run of form going into December, with stores looking to capitalise on Wal-Mart's low price perception and ability to offer great value on branded goods. However, Walmart U.S, the group's core operating division, posted a lower than expected 1.9% increase in comparable store sales for the month of December, as soft sales in apparel and home led to a fall in the size of the average ticket.

Sam's Club also experienced a tough Christmas, with sales arriving much later than anticipated. President and CEO of Sam's Club, Doug McMillon, said that consumers are beginning to display more selective shopping patterns across stores during these turbulent times.
 

Like-for-like sales performance for December

*Excluding fuel
Source: IGD

Dollar stores and cash & carry outlets were the "high flyers"

The dollar store channel enjoyed a strong end to the 2008 calendar year. These small neighbourhood stores specialise in offering low price points through a business model based on simplicity, efficiency, centralised distribution and uniform stores. This benefited the likes of Family Dollar - the third largest dollar store operator in the US - which posted a 6.0% increase in comparable store sales for the month of December, driven by increased customer traffic and transaction value.

Cash & carry operators like Costco and BJ's Wholesale also reported higher sales compared to other leading chains in the market. The challenge for this sector has been to reaffirm its value to paying members, and recent trading statements suggest that US shoppers are placing greater trust in their local cash & carry operator to deliver both value and quality. Costco, the No.1 player in the sector, and BJ's, the No.3 operator, reported a comparable store sales growth of 2.0% and 5.9% (excl.fuel), respectively, for the month of December.
 

Worrying performance at the big department stores

Declining consumer confidence towards discretionary spend continues to cause widespread concern amongst the leading US department store operators. This sector continues to brunt the worst of the storm right now, with retailers like Macy's and JC Penney posting a sharp fall in like-for-like sales, and Nordstrom and Sears reporting a double-digit decline for the month of December.

	Both BJ's Wholesale and Costco reported  positive comps for December

Stocks in these retailers also continue to fall alarmingly fast despite a number of aggressive attempts to kick-start incremental store sales across stores. At the end of November for example, JC Penney began a trial with convenience store specialist, 7 Eleven, to launch a new cross-promotion between the two chains across stores in Chicago, Los Angeles and Miami.
 

In Summary

It appears that pressure has continued to mount on US grocery store operators in the first few weeks of 2009. Rising unemployment and fears over further job cuts will continue to add greater complexity to the current trading environment, yet the challenge for many grocery store operators will be how to respond with the speed and urgency needed to cater for evolving consumer trends. Private label in the short-term is expected to grow, with discount store players, cash & carry operators and dollar store operators also well placed for the year ahead.

More information:

	Global Retailing: Preparing for Change
	This latest report provides an overview of how the next era of retailer internationalisation is shaping up, as well as highlighting the key growth markets and channels going forward

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Jamie Trust is a Business Analyst in IGD's Market Intelligence unit and is responsible for managing coverage of the US market. As well as coordinating IGD’s research on the European private label market, Jamie has co-authored the new report Global Retailing: Preparing for Change. In the last year he has travelled to the USA, Netherlands, Sweden, Denmark and the Baltic States, and continues to play an active role in the ongoing development of Retail Analysis, IGD’s online subscription service.