onsumer confidence took a beating earlier in 2005 as a result of the extended war in Iraq, Hurricane Katrina and billowing gas prices, but it bounced back in time to make the 2005 holiday shopping season at least a mildly merry one for retailers. Confident consumers translate to enthusiastic shoppers, and in November several factors came into play to boost consumer confidence.

The Labor Department released a report citing a 215,000 gain in payroll employment during November, more than offsetting the downward revision in October jobs. The Commerce Department reported that the economy grew by 4.1% in the third quarter, its fastest pace since January 2004, and that the gross domestic product (the value of all goods and services produced in the United States) climbed to $11.2 trillion.

Skyrocketing gas prices dropped back down toward earth (though prices are still 22% higher than in 2004). And amid signs that the housing market is cooling off, the Department of Housing and Urban Development reported that new home sales jumped by 13% in October.

Apparently in response to this news, and in spite of rising energy costs, consumer confidence rose in November to its highest level since August 2005. Although sales figures vary somewhat from source to source, retail holiday sales seemed to reflect this new-found confidence.

Visa U.S.A. reported that shoppers spent $257 billion using its card brand in the 2005 holiday season, (Oct. 31 - Jan. 1), 17.5% more than in 2004. The International Council of Shopping Centers (ICSC) reported that 2005 holiday sales rose 3.5% over 2004. December 2005 sales were $93.2 billion, up 3.2% from 2004's $90.3 billion.

The ShopperTrak RCT Corp.'s National Retail Sales Estimate (NRSE) reported the average weekly sales for December 2005, versus the same period the previous year, rose a more encouraging 7.4%, with average weekly traffic increasing 0.9%. According to a report from SpendingPulse, an affiliate of MasterCard International, U.S. consumers spent 8.7% more during the just-ended holiday shopping period than in the comparable period a year ago.

The report found that the biggest increases in spending were on home furnishings, up 15.2%, followed by consumer electronics and appliances, up 10.5%. Spending on jewelry was down 4.6%.

Online sales are the likely reason for ICSC's lower figures. ShopperTrak and SpendingPulse both track online sales as well as brick-and-mortar store sales, and online sales are up. ComScore Networks, a consumer research consultancy, said that online nontravel spending during the 2005 holiday season (Nov. 1 - Dec. 31) totaled $19.6 billion, a 25% increase over the $15.7 billion posted in 2004.

Still, retail sales weren't sufficient to warrant widespread celebration. "The results could best be described as being tepid," said Eugene Fram, a J. Warren McClure Research Professor of Marketing at the Rochester Institute of Technology.

According to the National Retail Federation (NRF), retailers enjoyed sales of $27.8 billion during the kickoff weekend of the holiday shopping season (Nov. 25 - 27) the second best season-starting volume in six years, even though data from ShopperTrak put Black Friday sales at $8.01 billion, down nearly 1% from the previous year.

Black Friday, the Friday after Thanksgiving, got its name because it was the day that retailers traditionally got out of the red and became profitable for the year.

According to ShopperTrak estimates, the rest of that weekend fared somewhat better, finishing relatively flat, rising just 0.4% over the same period in 2004. Bill Martin, co-founder of ShopperTrak, said across-the-board discounting may have held back the pace of sales early in the weekend; sales then strengthened as door-buster deals expired late Saturday and early Sunday.

But the 2005 shopping season ran longer than many have in the past, with Hanukkah starting late in the month (beginning at sunset on Dec. 25) and with Dec. 24 falling on a Saturday, creating one extra day for procrastinators to shop (there were 30 shopping days in 2005 versus 29 in 2004).

"The impact of the extra shopping day was realized by retailers as procrastinating shoppers completed their holiday spending very late in the season, helping it end with a bang and not a whimper," Martin said. "While this performance is very encouraging, the extra shopping day this season pushed the annually stagnant Christmas day to the next week, allowing a stronger weekly comparison versus 2004.

"Nevertheless, the immense last-minute consumer outpouring should have retailers feeling very optimistic leading into the traditionally strong post-Christmas shopping period as consumers take advantage of another day off to redeem gift cards and participate in late-season sales throughout the country," he said.

Gift cards prolong the season

The rising popularity of gift cards may also stretch the traditional holiday shopping season. "About 60% of gift card redemptions occur between December 26 and the end of January," said Michael P. Niemira, ICSC's Chief Economist and Director of Research. "Increasingly, retailers view this period as 'phase two' of the season."

Gift card sales are only recorded when customers redeem them. According to a survey conducted by the consultancy Accenture, 45% of the consumers polled said they will spend more than the card's value.

Wal-Mart Stores Inc., which has announced that its gift card sales in 2005 exceeded expectations, was just one discounter that rushed in new spring apparel immediately after Christmas to fuel those gift card sales and boost its January performance.

What isn't known is how much of a long-term effect 2005's deep discounts and heavily promoted sales had on overall profits. Many retailers, worried by early and grim consumer confidence predictions, offered extensive discounting this year in order to hedge their bets.

"This will go down as one of the earliest and most promotional Black Fridays in history," said NRF President and Chief Executive Officer Tracy Mullin. "Many stores opened earlier than ever before, and retailers offered unbelievable sales and discounts to get people shopping."

According to Fram, these promotions could make sales a little better than expected, but profits will suffer. Aggressive pricing may have driven sales gains but eroded margins.

"After some disappointing sales in many areas of the retail industry, resulting from the ripple effects of Katrina and high fuel prices, many retailers tried hard to jump-start this critical season with early pre-Thanksgiving promotions," said Amanda Nicholson, Assistant Professor, Retail Management and Marketing at Syracuse University.

"Wal-Mart kicked off its major marketing campaign at the beginning of November, two weeks earlier than last year."

In spite of Wal-Mart's early, and aggressive, discounting, the retailer's December same-store sales increase of a lackluster 2.2% (Wal-Mart's smallest December sales gain in five years) sent its stock prices, and those of other retailers, sliding.

The day following the announcement, Wal-Mart shares closed down $0.57 and fell another $0.13 in after-hours trading. Target Corp. shares (which had not yet announced December sales figures) slipped 1.56%, or $0.86, to $54.11. Kohl's Corp. shares fell 2.55%, or $1.24, to $47.36.

The results are in

In January 2006, Target, which started the holiday season slowly, announced a 4.7% gain in same-store sales in December, slightly better than its 4.6% estimate. Federated Department Stores Inc. announced a 3.4% sales gain. Barnes and Noble Inc. announced a 5.2% increase; Kohl's reported a 4.6% increase; and Best Buy Co. Inc. reported a 5.8% increase.

J.C. Penney Co. Inc. rose a mediocre 2.2%, but Costco Wholesale Corp. posted a 7% gain, and Circuit City Stores Inc. announced record holiday sales: an increase of 12.1%.

High-end retailers did fairly well. Nordstrom Inc. said its sales jumped 7.7%, and Neiman Marcus Group Inc. rose 5.3%. American Eagle Outfitters Inc. reported a 15.5% increase, and Abercrombie & Fitch Co. produced a surprising 29% gain.

Other retailers didn't fare as well. Gap Inc., the largest U.S. clothing chain, said same-store sales last month dropped 9%, although it said fewer discounts led to higher margins. Zale Corp. reported only a 0.9% increase. Sharper Image Corp. reported a 15% decline.

Sears Holdings Corp. announced that same-store sales at Sears stores plummeted 11.9% (one of the worst year-end performances in its 120-year history), and rose only 1% at Kmart stores.

The retail holiday season has been closely watched for years as a bellwether for the nation's economy, but fundamental changes in consumer behavior over the course of the season have made it more difficult to draw conclusions.

Experts say consumers are more bargain conscious than ever before. And while Black Friday is traditionally the second largest shopping day of the season (second to the Saturday before Christmas), online shoppers tend to start their online holiday shopping when they return to work on "Cyber-Monday" (the Monday after Thanksgiving). This year, Black Friday outperformed the Saturday before Christmas (likely because it was Christmas Eve).

Consumers, in general, now are waiting until later in the holiday shopping season to purchase gifts and are increasingly purchasing gift cards. (Because gift cards can be purchased easily and mailed more quickly than packages, they are a procrastinator's delight.)

Those changes, and the postponed recording of gift card sales, have also made it more difficult to read the holiday retail sales for their economic prophecies.

"This is not a great showing, but not a poor showing. It is somewhere in between," Niemira said in an Associated Press interview on Jan. 6, 2006. "Consumers are not splurging everywhere. It is a little here and there. The consumer is very selective."

He also noted that retailers will face a tougher environment over the next few months as higher heating bills, a weakening housing market and rising interest rates are likely to affect consumer spending.