Premature Celebration? Hold On. The Retail Holiday Season Ain’t Over Yet.

As much as we may want to dissect how retailers did during the holiday season, the jury is still very much out.

First of all, despite all the media attention that Black Friday and Cyber Monday get, a few days of big sales do not a season make. And given the degree of discounting we have witnessed, sales increases and growth in gross margin dollars (which is ultimately what retailers use to pay their bills) may not be especially well correlated.

Second, we should not underestimate the criticality of the week after Christmas to any retailer’s holiday scorecard, particularly this year. The day after Christmas is typically one of the five busiest shopping days in any retailers’ calendar. And this entire week is when a substantial percentage of gift cards get redeemed and presents get returned or exchanged. It is also a time when retailers assess the sell through rates of holiday specific gift items and take aggressive markdown action on under-performers.

But we really need the entire month of January to get the complete picture, especially when we consider that revenues are one thing but profits are very much another. Not only will gift card redemptions and the cost of returns ripple more fully through retailers’ P&L’s across the next few weeks, but seasonal merchandise inventory misfires will need to be addressed aggressively to get ready for spring shipments to start hitting sales floors. Retailers’ ability to balance clearing out excess merchandise without taking a bath on markdowns is a huge determinant of performance.

Having spent more than 30 years working in retail, I learned long ago that apparent success in the weeks leading up to Christmas often did not result in strong quarterly performance once the dust had settled. The ultimate story of this holiday season is still far from written.

At a time when inflation is propping up sales figures, when many retailers are still sitting on a glut of inventory, and when consumer spending is beginning to decelerate, we should be careful we don’t experience premature celebration.