January evolves into a hot month for retail sales

Lorrie Grant
USA TODAY

At one time, January was a month for staging huge sales promotions to clear merchandise, but now it's a key selling period for retailers.

As recently as a year ago, retailers would incrementally discount merchandise during the month, ratcheting down prices to move out holiday and winter inventory. They'd keep clearing goods until mid-February before filling racks and shelves with spring offerings. The extended period of discounting meant they closed the fiscal year (Jan. 31 for most) with a period of slim profit margins.

But several factors have come together to raise the importance of January in the retail year and cause retailers to give it more attention. This year, merchants began displaying fresh spring goods at full price alongside clearance items in early January.

"Consumers benefited from a new round of markdowns and new product flows," says Todd Slater, retail analyst at Lazard Capital Markets.

Reasons for January's lift:
*Gift-card redemption. Sales of gift cards for holiday gifts continue to increase. The majority -- up to 80% -- typically are redeemed by the end of January. Anticipating millions of consumers armed with gift cards showing up after the holidays, retailers moved to stimulate that spending by putting out more fresh merchandise.

It's a profit opportunity because gift cards are frequently used to buy full-price items, and consumers often spend more than the value of their gift cards, says Pat Conroy, national managing principal of the consumer business practice at Deloitte Research.

"Retailers that quickly begin to identify what gift-card holders are buying and stock sufficient quantities of merchandise should reap stronger sales and margins," he adds.

Department stores stand to gain from the trend because they tend to sell a great quantity of gift cards -- and can make the most from full-priced goods. "Department stores should be the biggest beneficiaries of gift-card redemptions in January," Citigroup retail analyst Deborah Weinswig said in a recent report, noting that the transaction total for a gift-card redemption tends to be about 40% greater than the card's value.

*Expected middle-class spending. Consumers earning $22,500 to $75,000 are expected to loosen their grip on their wallets after spending cautiously during the holiday shopping season, according to management consulting firm Retail Forward.

"Better incomes, investments and home buying among these households, which account for nearly half of total spending, have triggered the expected improvement in spending for January," says Steve Spiwak, an economist at Retail Forward.

*The football effect. Consumer electronics were among the hottest segments in retailing for the holidays, and fancy new flat-screen and high-definition televisions were among the most popular.

Mix the fancy new models with January's glut of high-stakes football -- from the college championship, through the National Football League playoffs and the Super Bowl -- TVs have just kept selling.

"This year, probably more than others, the growth in high-definition and flat-panel televisions in particular is attracting more people to the marketplace more than anything else," says Michael Vitelli, senior vice president of consumer electronics at Best Buy.