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Discount and Gift Cards Boost January Retail Sales

Discounts and gift cards helped many U.S. retailers rebound in January from a dreary December, according to data released Wednesday, but analysts suspected post-holiday sales were stunted by the weaker economy.

Kathy Willens

While data from SpendingPulse, the retail data service of MasterCard Advisors, projected men's apparel, electronics and online retailers saw gains in January, analysts expected weakness at department stores and specialty retailers.

"Our checks suggest that weak traffic persisted and we expect January sales results to be lackluster, a continuation of disappointing sales reported for December," Cowen & Co analyst Lauren Cooks Levitan said in a note on Tuesday.

Specialty apparel sales rose 5.4 percent in January after a 2.3 percent increase in December, said SpendingPulse, as lower prices and gift cards lured more shoppers into stores.

Men's apparel sales were up 7.3 percent in January, far better than the 1.6 percent increase in December, SpendingPulse said.

January Same-Store Sales Preview

Sector
January 2008 Estimate
January 2007 Actual
TF Index 1.0% 3.9%
ex-Wal-Mart 0.1% 5.2%
Discount 2.3% 2.6%
Discount ex-WMT 3.0% 3.5%
Department -5.2% 6.6%
Apparel -2.3% 2.5%
Apparel ex-GPS -0.9% 3.2%
Teen Apparel -0.3% 2.3%
Specialty -9.0% -7.7%
Drug 2.7% 8.7%

The data from SpendingPulse, which tracks sales in the MasterCard payments network and couples it with estimates for all other payment forms, is an early indicator of the strength of January same-store sales. Chains such as Wal-Mart Stores, Gap and J.C. Penney, will report those results on Thursday morning.

Results "could be ugly tomorrow," said Ken Perkins, president of research firm Retail Metrics.

Investors will keep a close eye on the data, as they assess the health of consumer spending, which accounts for about two-thirds of the U.S. economy.

"It appears as though some of the post-holiday season sales that went in to January saw some discounting, and potentially even gift card redemption traffic might have helped things," said Michael McNamara, SpendingPulse's vice president of research and analysis.

The January data follows a disappointing December for retailers as snowstorms, discounts and economic worries made the 2007 shopping season the worst in five years. A shift in the retail reporting calendar also made some sales results seem worse than they actually were.

Retailers had hoped for an after-holiday boost from gift cards, but some chains like Macy's and J.C. Penney had warned that weak sales could spill into the new year.

McNamara noted while several retailers discounted holiday merchandise in January, they also added new and full-priced products to take advantage of shoppers using gift cards.

Nonetheless, sales of women's apparel, which have lagged the sector for some time, fell 2.2 percent in January after a 3.8 percent decline a month ago.

That could mean that specialty women's chains such as Talbots and AnnTaylor Stores grappled with competition and purse tightening by women who spend less during economic uncertainty.

"The teen consumer is looser with his/her money, while baby boomer women are continuing to narrow their purchasing patterns," said retail analyst Jennifer Black of Jennifer Black and Associates.

The U.S. economy is teetering near a recession as the housing market downturn, credit crunch and higher food and fuel costs squeeze consumer spending.

Recession fears may be good for discount stores like Wal-Mart, according to Citigroup analyst Deborah Weinswig.

"They have a great price-value proposition and a large mix of consumables to offset slower discretionary spending," she wrote.

For retailers on the West Coast, storms and cold January weather could have hit sales, SpendingPulse's McNamara said.

Weather tracking firm Planalytics has said chilly January weather that caused traffic snags and power outages across the U.S. Northeast and Midwest could have taken a toll across the retail spectrum.

Furniture and home furnishings lagged in January due to the housing slump, while electronics sales grew 9.6 percent in January, thanks in part to gift cards, McNamara said.

Luxury sales, factoring in high-end restaurants, apparel and leather goods stores, were up 8.3 percent, excluding jewelry sales, which still faced a huge cutback, he said.

Online sales rose 22.1 percent as the number of purchases and the amount per purchase increased, McNamara said, but he noted that December sales growth was higher at 32.3 percent.

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