Santa Was Good to Retailers This Year

By Suzanne Kapner And Sara Germano 

American shoppers were on track to deliver a welcome Christmas gift to retailers: the best holiday sales growth in three years.

Sales gained momentum throughout December, according to the International Council of Shopping Centers, as the countdown to Dec. 25 brought out more shoppers needing presents to put under the tree.

"Sales got very strong leading up to Christmas," said Gerald Storch, the former CEO of Toys "R" Us Inc., who next month will take the helm of the company that owns Saks Fifth Avenue and Lord & Taylor.

A series of encouraging economic indicators has raised optimism about the U.S. economy that may have helped boost confidence during the critical holiday shopping season. Among them: The economy expanded at its fastest pace in 11 years in the third quarter, and job growth is the strongest since 1999. The Thomson Reuters/University of Michigan's measure of consumer confidence rose in December to its highest level since January 2007.

Meanwhile, gas prices have fallen to their lowest levels in five years, which is saving U.S. consumers more than $450 million a day, according to auto club AAA.

"You can't minimize the importance of falling gas prices and the increase in personal income," said Jack Kleinhenz, the chief economist for the National Retail Federation, an industry trade group. The NRF is expecting a 4.1% increase in sales during November and December, the strongest rate since 2011, when sales rose 4.8%.

A strong holiday will be welcome news to Wal-Mart Stores Inc., Target Corp. and other retailers that have been contending with declining shopper traffic and formidable competition from Internet rivals like Amazon.com Inc. Even if sales come in ahead of expectations, they may have come at the expense of profitability because companies had to rely heavily on promotions to lure consumers to spend.

Retailers enjoyed stronger holiday sales in 2010 and 2011 as pent-up demand after the recession led consumers to stronger holiday spending. But then a stalling economic recovery, persistently high levels of unemployment and stagnant wage growth caused shoppers to become thriftier, constantly comparing prices online and limiting their impulse purchases.

At Crossgates Mall in Albany, N.Y., parking spaces were hard to come by on Dec. 24, as last-minute holiday shoppers packed the mall's stores.

Cathy Lincourt, a physical therapist from Clifton Park, N.Y., was out Wednesday afternoon looking for a telescope for her husband. She also was armed with coupons for stores like Macy's Inc. and J.C. Penney Co. Ms. Lincourt, 43 years old, said falling gasoline prices have put an extra $60 into her pocket a month. "It's nice to have that extra bit," she said, adding that some of it goes to savings.

Any sign that consumers are becoming less frugal would be welcome but retailers remain cautious. "We are doing a bit better than we thought in terms of traffic and sales," said Patrik Frisk, the chief executive of Aldo Group, the Canadian footwear company that operates the chain of Aldo shoe stores in the U.S.

Last year's holiday was marred by a surge in last-minute online orders that caught delivery companies flat-footed and left many Americans without their gifts on Christmas morning. This year, FedEx Corp. and United Parcel Service Inc. worked with retailers to forecast volumes ahead of time to be better prepared. In the days before Christmas this year, both delivery giants started selectively capping air-express deliveries that exceeded the agreed-upon limits with minimal consumer outcry.

Early estimates this year indicate that Dec. 20, known as Super Saturday, was the biggest shopping day of the season, edging out Black Friday, which had held that spot for the past decade. Saturday's sales totaled $23 billion, compared with Black Friday's $20 billion, according to consulting firm Customer Growth Partners.

Falling five days before Christmas, Super Saturday was "close enough to create a sense of urgency in shoppers, but not too close to conflict with most travel plans," said Craig Johnson, president of Customer Growth Partners.

Black Friday, the day after Thanksgiving when retailers traditionally offered their steepest discounts, has waned in importance as retailers have spread their promotions earlier in November.

The shift pulled sales forward and contributed to a drop in sales over the Thanksgiving weekend. But overall sales excluding newly opened or closed stores came in ahead of expectations for retailers that report the monthly figure, according to Retail Metrics.

Despite the gains, 2014 will still fall short of the boom years that predated the recession when holiday sales growth exceeded 6%. And some shoppers still say they feel strapped.

"It's been a tough year," said Denita Bell, a phlebotomist from Hudson, N.Y., who planned to spend $400 Wednesday on gifts including a pair of silver Nike KD basketball shoes for her 10-year-old son. "I started my shopping late because the bills came in and I had to wait for my last paycheck."

Write to Suzanne Kapner at [e-mail] and Sara Germano at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires