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Why Christmas in July Is a Bad Retail Idea

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Any browning evergreen tree, melted snowman or sweaty Santa can tell you Christmas in July is a bad idea. Maybe one day retailers will get the same message.

The Christmas in July gimmick stretches back to at least 1940, when a film of the same name was released and retailers saw an opportunity to unload their surplus of dusty tinsel packets, frosted fake trees and fossilized candy canes. Last year, however, retailers ratcheted up the hype a bit to speed recession recovery. Results were mixed, but they figure that's no reason not to do it all again this year.

Target and Toys R Us are planning summer versions of winter holiday sales, but consumers aren't in the holiday spirit.
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Toys R Us kicks off the midsummer sales Sunday with "Christmas in July." The toy retailer is planning winter, holiday-style deals and discounts similar to those it has offered each July since 2009. It will do so, however, without the Christmas Savers Club plan it touted last year. The plan, which allowed consumers to put holiday spending cash on a card each month for future use, has been discontinued.

Target (TGT) is also returning to its early holiday playbook by hosting an online-only "Back in Black Friday" event July 15. The sale basically repeats an event the retailer held last summer and offers up to 50% savings on toys, electronics, entertainment items and other categories. The gambit appeared to work for Target last year, as July sales rose 3.8% and same-store sales rose 2% over the same period in 2009, but market research company IBISWorld retail analyst Nikoleta Panteva says those gains were within expectations -- the residual effect of economic recovery.

"The Christmas in July promotions put in place last year did not result in a broad-based sales increase, as anticipated," Panteva says. "Overall, the promotion's strategy seemed to be more of sustaining sales rather than boosting them."

In the wake of its Black Friday sales last year, Target closed all 262 of its garden stores. Competition from Wal-Mart (WMT), Home Depot (HD), and Lowe's (LOW) was blamed, but Target's desire to fill that space with cheap groceries resulted in a 2% first-quarter same-store sales increase that fell well below expectations. It pushed its shares close to its 52-week low and bolstered the belief that the chain sold out its cool semi-chic persona during the recession and ceded that designer ground to Macy's (M), Kohl's (KSS), Bed, Bath & Beyond (BBBY), and even J.C. Penney (JCP).

Target isn't the only retailer feeling the economic heat and getting no relief from winter-style sales. Sears and Kmart got into the holiday spirit in 2009 and last year by adding "Christmas Lane" holiday item promotions in July as well as a Christmas Club savings plan. They haven't indicated interest in stocking the shelves and websites with nutcrackers and ornaments again, though, and it would be hard to blame them for passing.

Between Aug. 1, 2009, and July 31, 2010, Sears (SHLD) closed 43 of its Kmart stores and 18 of its full-line store in what Panteva says was an attempt to "keep its balance sheets clean." During that time, same-store sales at Kmart dropped 1.4% and Sears sales fell 2.8%. The company dropped another four Kmart stores and a dozen full-sized Sears stores by the first quarter (and watched Kmart sales drop another 1.6% from first-quarter 2010 and Sears sales wither by 5.2% during the same period) as appliances and electronics -- the usual Christmas in July offerings -- went nowhere and consumers continue to lose touch with both stores.

"Sears has felt the effect of a weak housing market and mounting competition from home improvement stores," Panteva said. "It's struggled with its brand over much of the past five years."

None of those factors in themselves make a Christmas in July promotion a bad idea; the inability to return any holiday gift bought during these special sales alone makes a summer version of a winter holiday sale a bad proposition for a consumer.

After ComScore reported that holiday sales from Nov. 1 through Dec. 31 of last year hit a record $32.6 billion, a 12% increase from the same period in 2009, Consumer Reports and the National Retail Federation insinuated it is unwise and unnecessary to start holiday shopping this early -- mostly because it makes returning unwanted presents nearly impossible. Last holiday season, Target and Toys R Us accepted returned items only 90 days after they were bought. Sears and Kmart were slightly better, and expanded their return window to 120 days, but only on items bought on or after Nov. 14.

Holiday shoppers have all of Black Friday, Cyber Monday, Green Monday and Free Shipping Day to cash in on deals much better than what's being offered with products much fresher than what's sitting on shelves. Considering that sales on those shopping holidays increased 9%, 16%, 12% and 61% respectively last year, consumers may be better served by forgoing Christmas in July for a pay-over-time gift card to Home Depot, Best Buy, Wal-Mart or Foot Locker (FL) -- such as those offered by eLayaway -- and waiting for the real deals.

Stay on top of the best financial news and commentary on Wall Street by following us @Minyanville.

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