December brought some disappointing monthly sales figures for Target Corp. A key measure of sales showed improvement over December 2009, but fell short of expectations.
Retail analysts surveyed by Thomson Reuters had expected December sales at Target stores open at least a year -- a key measure -- to surge 4 percent over the year before. But in the end, the discount retailer's sales only edged up about 1 percent.
Target said December was weak because customers made a lot of purchases earlier in the season, and when they did shop last month, customers bought cheaper gifts than expected. Bad weather may also have kept some shoppers home.
Target's grocery and apparel segments did see a sales bump last month. But sales of items like electronics, toys, music, and movies actually dropped.
"Electronics has been one of the most competitive holidays this holiday season. Aggressive discounting across the board has really dragged down results," said R.J. Hottovy, a retail analyst with Morningstar.
Hottovy says Target isn't the only retailer having trouble with electronics sales. In December, Best Buy reported a decline in third quarter profit and cut its outlook. Hottovy says it's really hard for retailers to stand out selling some electronics.
"TVs are pretty much everywhere at this point. You can get them somewhere as non-traditional as a grocery store at this point," he said. "I think we're starting to see some of those results in Target's results today."
“There's no doubt that 70 percent of Americans are in the tank, and if you're Target, a lot of those folks are your customers.”Analyst Howard Davidowitz
But retail analyst Howard Davidowitz thinks Target's December sales performed reasonably well, all things considered. He points to a number of retailers that have been struggling.
"Sears is the largest department store in the United States, they're in the crapper," he said. "Walmart is the largest retailer on planet Earth, they're comparable store sales have been down for six consecutive quarters and they're still in the tank. Walgreens just announced an earnings disappointment."
That perspective may seem confusing, especially amid other reports that the retail sector is bouncing back. On Thursday, MasterCard SpendingPulse reported that in the 50 days before Christmas, holiday shopping climbed nearly 6 percent from the year before -- the highest year-over-year jump since its recordkeeping started in 2006.
Davidowitz says some of the retail reports look so rosy because they reflect the shopping of high-end shoppers. He says luxury stores are faring well.
"There's no doubt that we have a bifurcated consumer. And the top end, of course, the wealth factor is real," said Davidowitz. "There's also no doubt that 70 percent of Americans are in the tank, and if you're Target, a lot of those folks are your customers. So it's very tough."
That assessment is grimmer than the view of economist Mark Zandi of Moody's Analytics. He sees the American consumer split not in half, but into thirds. Those in the top third in terms of income are doing fine and spending strongly.
"The middle third -- they have a job, they're still spending. They're more cautious than they were; their saving rates are up. They're not out blowing down the doors, but they're doing their part," he said.
"And the bottom third is obviously under tremendous pressure. Unemployment's still 10 percent, foreclosures are at record highs, they've got lots of financial problems."
But Zandi says the lowest third only account for about 10 percent of spending. The bulk of spending is done by the top one-third of shoppers.
Even still, Zandi sees all boats rising. He says unemployment is likely to start ticking down, and the worst of the foreclosure crisis has passed.
He's expecting consumer spending to jump about 3.5 percent in 2011, twice as fast as in 2010.
And that kind of bump could give Target a lift, too.