RIM shares dive as fee changes catch market off guard

Shares of BlackBerry maker Research In Motion Ltd plunged more than 20 percent on Friday on fears that a new fee structure for its high-margin services segment could put pressure on the business that has set the company apart from its competitors.
It was the stock's biggest, single-day, percentage price drop since September 2008. But shares were still nearly 80 percent above the year's low, which was reached in September. They started to rally in November as investors began to bet that RIM's long-awaited new BlackBerry 10 phones, which will be unveiled in January, would turn the company around.
The services segment has long been RIM's most profitable and accounts for about a third of total revenue. Some analysts said there was a risk that the fee changes could endanger its service ecosystem and leave the Canadian company as just another handset maker.
The fee changes, which RIM announced on Thursday after market close, overshadowed stronger-than-expected quarterly results. The company said the new pricing structure would be introduced with the BlackBerry 10 launch, expected on January 30.
RIM said some subscribers would continue to pay for enhanced services such as advanced security. But under the new structure, some other services would account for less revenue, or even none at all.
Chief Executive Thorsten Heins tried to reassure investors in a television interview with CNBC on Friday, saying RIM's "service revenue isn't going away".
He added: "We're not stopping. We're not halting. We're transitioning."
Since taking over at RIM in January, Heins has focused on shrinking the company and getting it ready to introduce its new BB10 devices, which RIM says will help it claw back ground it has lost to competitors such as Apple Inc and Samsung Electronics.
But the new services pricing strategy came as a shock to markets, and some analysts cut their price targets on RIM stock.
RIM will not be able to sustain profitability by relying on its hardware business alone, said National Bank Financial analyst Kris Thompson, whom Thomson Reuters StarMine has rated the top RIM analyst based on the accuracy of his estimates of the company's earnings.
Thompson downgraded RIM's stock to "underperform" from "sector perform" and cut his price target to $10 from $15.
Forrester Research analyst Charles Golvin said the move was likely about stabilizing market share: "At the moment, they need to stem the bleeding."
He said the tiered pricing might line up better with RIM's subscriber base as it expands in emerging economies.
RIM's Nasdaq-listed shares closed down 22.7 percent at $10.91 on Friday. The stock fell 22.2 percent to C$10.86 on the Toronto Stock Exchange.
COUNTDOWN TO LAUNCH
The success of the BB10 will be crucial to the future of RIM, which on Thursday posted its first-ever decline in total subscribers. Heins said on CNBC that the company expected to ship millions of the new devices.
He cautioned that this will require heavy investment, which will reduce RIM's cash position in its fourth and first quarters from $2.9 billion in its fiscal third quarter. He said, however, it would not go below $2 billion.
Still, doubts remain about whether RIM can pull off the transformation. Needham analyst Charlie Wolf said the BB10 would have to look meaningfully superior to its competitors for RIM to stage a comeback.
Canaccord Genuity analyst Michael Walkley said it was highly unlikely that the market would support RIM's new mobile computing ecosystem, and he remained skeptical about the company's ability to survive on its own.
"We believe RIM will eventually need to sell the company," said Walkley, who cut his price target on RIM shares to $9 from $10.
Baird Equity Research analysts said BB10 faced a daunting uphill battle against products from Apple, as well as those using Google Inc's Android operating system, and, increasingly, phones with Microsoft Corp's Windows 8 operating system.
Baird maintained its "underperform" rating on the stock, while Paradigm Capital downgraded the shares to "hold" from "buy" on uncertainty around the services revenue model.
"RIM has gone from having one major aspect of uncertainty - BlackBerry 10 adoption - to two, given an uncertain floor on services revenue," William Blair analyst Anil Doradla said.
RIM will have to discount BB10 devices significantly to maintain demand, Bernstein analyst Pierre Ferragu said.
The BlackBerry, however, still offers the security features that helped it build its reputation with big business and government, a selling point with some key customers.
Credit Suisse maintained its "neutral" rating on the stock, but not because it expected BB10 to be a big success.
"Only the potential for an outright sale of the company or a breakup keeps us at a neutral," Credit Suisse analysts said.
Separately on Friday, ailing Finnish mobile phone maker Nokia said it had settled its patent dispute with RIM in return for payments.

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TSX ends flat as RIM buckles, gold miners bounce

Canada's main stock index ended little changed on Friday as gold miners gained on safe-haven buying amid U.S. budget uncertainty, while BlackBerry maker Research In Motion Ltd plunged more than 20 percent.
The index's materials sector, which includes miners, rose 0.4 percent. Even though the price of gold was near its lowest level in four months, the gold-mining sub-sector added 0.9 percent as investors fretted over stalled U.S. budget talks that could throw Canada's largest trading partner back into recession.
"As our tiptoes are over the (U.S.) fiscal cliff and we're looking over the abyss, the markets are upset obviously, and this is sort of putting a damper on the stocks," said John Ing, president of Maison Placements Canada.
"But we've had a mixed reaction in Canada, mainly because the resources have been much better, like gold for example, which is hedging into the uncertainty (around the budget talks)," he said, noting gold miners had been under pressure for the last two weeks.
Miner Barrick Gold Corp edged up 0.2 percent to C$33.29. Centerra Gold Inc jumped more than 3 percent to C$9.10.
Gold miners are playing catch-up after underperforming throughout the year and could rise further in 2013, said Gavin Graham, president at Graham Investment Strategy.
Shares of RIM dropped 22.2 percent to C$10.86 on fears that a new fee structure for its high-margin services segment could put pressure on the business that has set the company apart from its competitors.
The Toronto Stock Exchange's S&P/TSX composite index <.gsptse> fell 3.01 points, or 0.02 percent, to end at 12,385.70. It gained 0.7 percent for the week.
Efforts to avoid the looming U.S. "fiscal cliff" were thrown into disarray on Friday with finger-pointing lawmakers fleeing Washington for Christmas vacations even as the year-end deadline for action edged ever closer.
Graham said that until a deal is reached in the U.S. budget talks, investors will avoid economically sensitive Canadian stocks and those most closely tied to the U.S. economy: auto parts manufacturers, forestry companies and resource stocks generally.
"The resource sectors in Canada, which is half of the index, is going to be adversely affected, correctly or not," he said.
"Chinese demand is likely to pick up somewhat now with the new leadership there but people will be focused on the U.S. given that it is still by far the most important export market for Canada.

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First photos of BlackBerry 10 ‘N-Series’ QWERTY smartphone leak

As Research In Motion (RIMM) begins its attempt to mount a comeback for the ages in 2013, it will place its early hopes on two high-end smartphones. The first is the BlackBerry Z10, and we’ve already seen it in a number of leaks. The second is a QWERTY-equipped touchscreen phone similar to the current BlackBerry Bold 9900, and it has just been pictured for the first time in photos published by Chinese blog cnBeta.com. No additional information accompanied the photos, however earlier reports stated that the smartphone will include a 720 x 720-pixel display with a pixel density of 330 ppi. Another image of the BlackBerry 10-powered N-Series phone follows below.

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Fifth-gen iPad reportedly due in March along with Retina iPad mini

Rumors that a second-generation iPad mini with a Retina display is set to launch ahead of Apple’s typical annual schedule next year have been swirling, and now it appears Apple’s (AAPL) full-size iPad may be sticking to its new semiannual release schedule. According to a report from Japanese blog Makotakra that cites an anonymous “inside source,” Apple plans to launch a new thinner, lighter 9.7-inch iPad as soon as March 2013. The fourth iPad model was just released last month alongside the iPad mini, but March was also suggested in recent Retina iPad mini rumors. Makotakra states that the new iPad will adopt styling queues from the current iPad mini model, unifying the look of Apple’s larger tablet with the iPad mini and iPhone 5.

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Find room for God in fast-paced world, pope says on Christmas eve

Pope Benedict, leading the world's Roman Catholics into Christmas, on Monday urged people to find room for God in their fast-paced lives filled with the latest technological gadgets.
The 85-year-old pope, marking the eighth Christmas season of his pontificate, celebrated a solemn Christmas Eve mass in St Peter's Basilica, during which he appealed for a solution to the Arab-Israeli conflict and an end to the civil war in Syria.
At the mass for some 10,000 people in the basilica and broadcast to millions of others on television, the pope wove his homily around the theme of God's place in today's modern world.
"Do we have time and space for him? Do we not actually turn away God himself? We begin to do so when we have no time for him," said the pope, wearing gold and white vestments.
"The faster we can move, the more efficient our time-saving appliances become, the less time we have. And God? The question of God never seems urgent. Our time is already completely full," he said.
The leader of the world's some 1.2 billion Roman Catholics said societies had reached the point where many people's thinking processes did not leave any room even for the existence of God.
"Even if he seems to knock at the door of our thinking, he has to be explained away. If thinking is to be taken seriously, it must be structured in such a way that the 'God hypothesis' becomes superfluous," he said.
"There is no room for him. Not even in our feelings and desires is there any room for him. We want ourselves. We want what we can seize hold of, we want happiness that is within our reach, we want our plans and purposes to succeed. We are so 'full' of ourselves that there is no room left for God."
PEACE CANDLE
Bells inside and outside the basilica chimed when the pope said "Glory to God in the Highest," the words the gospels say the angels sang at the moment of Jesus' birth.
Earlier on Monday the pope appeared at the window of his apartments in the apostolic palace and lit a peace candle, as a larger-than-life nativity scene was unveiled in St Peter's Square below.
Reflecting on the gospel account of Jesus born in a stable because there was no room for Mary and Joseph in the inn, he said when people find no room for God in their lives, they will soon find no room for others.
"Let us ask the Lord that we may become vigilant for his presence, that we may hear how softly yet insistently he knocks at the door of our being and willing.
"Let us ask that we may make room for him within ourselves, that we may recognise him also in those through whom he speaks to us: children, the suffering, the abandoned, those who are excluded and the poor of this world," he said.
He asked for prayers for the people who "live and suffer" in the Holy Land today.
The pope called for peace among Israelis and Palestinians and for the people of Syria, Lebanon and Iraq and prayed that "Christians in those lands where our faith was born may be able to continue living there, that Christians and Muslims may build up their countries side-by-side in God's peace."
The Vatican is concerned about the exodus from the Middle East of Christians, many of whom leave because they fear for their safety. Christians now comprise five percent of the population of the region, down from 20 percent a century ago.
According to some estimates, the current population of 12 million Christians in the Middle East could halve by 2020 if security and birth rates continue to decline.
At noon (1100 GMT/6 AM ET) the pope will deliver his twice-yearly "Urbi et Orbi" (to the city and the world) blessing and message from the central balcony of St Peter's Basilica.

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Future of state estate taxes hangs on U.S. "fiscal cliff"

Falling off the "fiscal cliff" is a bad thing, right?
Not necessarily for some state governments that could begin collecting more in estate taxes on wealth left to heirs if the United States goes over the "cliff," allowing sharp tax increases and federal spending cuts to take effect in January.
In an example of federal and state tax law interaction that gets little notice on Capitol Hill, 30 states next year could collect $3 billion more in estate taxes if Congress and President Barack Obama do not act soon, estimated the Urban-Brookings Tax Policy Center, a Washington think tank.
The reason? The federal estate tax would return with a vengeance and so would a federal credit system that shares a portion of it with the 30 states. They had been getting their cut of this tax revenue stream until the early 2000s. That was when the credit system for payment of state estate tax went away due to tax cuts enacted under former President George W. Bush.
With the return of the credit system next year as part of the "cliff," states such as Florida, Colorado and Texas - which have not collected estate tax since 2004 - could resume doing so. California Governor Jerry Brown has already begun to add the anticipated estate tax revenue into his plans, including $45 million of it in his 2012-2013 revised budget.
Brown may or may not be jumping the gun.
CLOUDY CLIFF AHEAD
The outlook on the "fiscal cliff" coming up at year-end is uncertain. Democratic President Barack Obama has said he hopes for a last-minute deal to avert it. That would need to get done soon, with Congress just now coming back from its holiday break.
Chances of an agreement became more remote last week after Republicans in the U.S. House of Representatives fumbled their own legislative attempt to prevent the fiscal jolt that economists say could trigger a recession.
House Speaker John Boehner abruptly adjourned the chamber for the holidays after failing to gather the votes from within his own party to pass legislation he and other Republicans had drafted, after walking out of negotiations with Obama.
Weeks of inconclusive political drama over the "cliff" have focused largely on individual income tax rates and spending on federal programs such Medicare and Social Security, but many tax issues are also involved, including the estate tax.
At the moment, under laws signed a decade ago by Bush, the estate tax is applied to inherited assets at a rate of 35 percent after a $5 million exemption. That means a deceased person can pass on an inheritance of up to $5 million before any tax applies. Inherited wealth passed to a spouse or a federally recognized charity is generally not taxed.
Obama wants to raise the rate to 45 percent after a $3.5 million exemption. Republicans have called for complete repeal of the estate tax, which they call the "death tax," though Boehner earlier this month called for freezing the estate tax at its present level. It was difficult to determine what the Republicans want after last week's events in the House.
STATES STAND TO GAIN
If Congress and Obama do not act by December 31, numerous Bush-era tax laws will expire, including the one on estate taxes. That would mean the estate tax rate will shoot up next year to the pre-Bush levels of 55 percent after a $1 million exemption.
It would also mean that for the first time in years, a portion of that estate tax would go to the states, through the return of the credit system.
Under that old law, estates paying the tax could get a credit against their federal tax bill for state estate tax payments of up to 16 percent of the estate's value.
If the fiscal cliff were allowed to take hold unaltered by Washington, 30 states would again automatically begin getting their share of federal estate taxes. The state laws are generally written so the state estate tax amounts are calculated under a formula based on the amount of the federal credit.
This would help states that have struggled with lower tax revenues since the 2007-2009 financial crisis and resulting recession, according to research by the Pew Center on the States, though painful federal spending cut backs would also hurt the states.

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Stranded by winter storm? Tips for fliers

A massive winter storm is disrupting travel plans for tens of thousands of fliers trying to get home after Christmas. Snow, thunderstorms, sleet, tornados and high winds have grounded planes in the nation's midsection and are expected to slow operations on the East Coast.
Delays racked up from Dallas to Indianapolis to Chicago. By 3 p.m. EST Wednesday, more than 1,100 flights nationwide had been scrapped, according to flight tracking site FlightAware.com.
More cancelations are likely throughout the evening, with Washington, New York and Philadelphia expected to see the largest problems. For instance, wind gusts at New York's John F. Kennedy International Airport could exceed 50 mph Wednesday night, according to FlightAware.
Passengers are pretty much at the mercy of Mother Nature and the airlines. But there are a few things they can do to improve their odds of getting home quickly.
— If you miss your connection, the airlines will automatically rebook you on the next available flight. However, with flights at near capacity, the next open seat could be several days away. Two years ago, some Christmas fliers had to wait nearly a week to get home.
— If you're unhappy with your rebooked flight, get in line to speak to a customer service representative. But also, pick up the phone and call the airline directly, go onto the airline's website and even consider sending a Tweet.
— Consider buying a one-day pass to the airline lounge. It's a nice place to relax away from the crowd and there are usually free drinks and small snacks. But the real secret to the lounges is that the airline staffs them with some of its best — and friendliest — ticket agents. The lines inside will be much shorter and these agents are magically able to find empty seats where nobody else can. One-day passes typically cost $50 per person.

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Retailers pull stocks lower on poor holiday sales

For the stock market, this week hasn't been the most wonderful time of the year.
U.S. stocks fell Wednesday for the third trading day in a row. Disappointing holiday sales weighed heavy on retail companies, and the unwelcome "fiscal cliff" package of higher taxes and lower government spending loomed nearer.
The Dow Jones industrial average slipped 24.49 points to 13,114.59. The Standard & Poor's 500 index fell 6.83 to 1,419.83 and the Nasdaq composite lost 22.44 to 2,990.16.
Karyn Cavanaugh, market strategist with ING Investment Management in New York, wrote a note to clients Wednesday highlighting the less-than-merry retail sales.
"I hope that they're reading this from the mall," she said later, "because retail sales could use a boost."
The MasterCard Advisors SpendingPulse report found that sales of electronics, clothing, jewelry and home goods increased just 0.7 percent in the two months before Christmas compared with the same period last year.
That was well below the 3 to 4 percent that analysts had expected and the worst performance since 2008, when spending shrank during the depths of the Great Recession.
Major U.S. retailers including Abercrombie & Fitch, Sears Holdings, Urban Outfitters, Limited Brands, Nike and Gap were all down. Handbag maker Coach, a bellwether of the luxury market, plummeted $3.39 to $54.13. It lost nearly 6 percent of its value, more than any other company in the S&P 500.
Right behind it was online retailer Amazon.com, which helps analysts get a read on the entire retail market. It lost nearly 4 percent, falling $9.99 to $248.63.
Plodding retail sales are a concern because consumer spending accounts for roughly 70 percent of the U.S. economy. When shoppers pull back on spending, that can take a chunk out of company earnings, which in turn pushes down the stock market.
The retail numbers are also a sign that despite scattered hints of an improving economy, including a report Wednesday about rising home prices, many consumers remain uneasy about their prospects.
"Consumers just aren't confident," said Jeff Sica, president and chief investment officer of SICA Wealth Management in Morristown, N.J. "They don't feel a sense of security that they're going to be able to maintain their job or their income or their savings."
Sica pointed out that normally the market rises at this time of year — the so-called Santa Claus rally. Since 1969, stocks have risen an average of 1.6 percent over the last five days of December and the first two of January, according to The Stock Trader's Almanac.
This year, it seems, the retail sales and "fiscal cliff" have been too much of an overhang.
The "fiscal cliff" refers to lower government spending and higher taxes that will kick in Jan. 1, if Republicans and Democrats can't agree to a new budget by then.
The Senate is due in session Thursday, and President Barack Obama is expected to return early from his Christmas vacation in Hawaii, arriving back in Washington early Thursday. Still, congressional officials said Wednesday they knew of no significant strides toward a compromise over the long Christmas weekend, and no negotiations have been set.
It's not clear that the market would automatically rise if there is a deal, or automatically fall if there isn't. Except for the past three days, the market has risen more or less steadily since mid-November despite the lack of a "fiscal cliff" deal. That means many traders have been assuming that lawmakers would work out something before the deadline, so any positive effect from a compromise is already baked into stock prices.
While a compromise is still possible, some analysts said that what the market feared most wasn't the cliff, but the possibility that lawmakers would come up with only a stop-gap solution. That would probably mean they'd have to meet again in the new year to hammer out a permanent deal, dragging out the uncertainty.
"It's like ripping the Band-Aid off now versus later," Cavanaugh said. "The Band-Aid's got to come off. We've got to cut spending, we've got to pay down the debt."
The bright spot was a report from the Standard & Poor's/Case-Shiller national home price index, which said that home prices rose in most major U.S. cities in October compared with a year ago. However, prices fell in many cities compared to the month before.
The yield on the benchmark 10-year Treasury note edged down to 1.75 percent from 1.77 percent Monday, a sign that investors were taking money out of stocks and putting it into bonds.
It was the first trading day after the Christmas holiday. Trading volume was low, and European markets were still closed.
Just 2.3 billion shares were traded on the New York Stock Exchange. For the year so far, the average has been around 3.6 billion.

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Fees undermine fliers' ability to compare fares

For many passengers, air travel is only about finding the cheapest fare.
But as airlines offer a proliferating list of add-on services, from early boarding to premium seating and baggage fees, the ability to comparison-shop for the lowest total fare is eroding.
Global distribution systems that supply flight and fare data to travel agents and online ticketing services like Orbitz and Expedia, accounting for half of all U.S. airline tickets, complain that airlines won't provide fee information in a way that lets them make it handy for consumers trying to find the best deal.
"What other industry can you think of where a person buying a product doesn't know how much it's going to cost even after he's done at the checkout counter?" said Simon Gros, chairman of the Travel Technology Association, which represents the global distribution services and online travel industries.
The harder airlines make it for consumers to compare, "the greater opportunity you have to get to higher prices," said Kevin Mitchell, chairman of the Business Travel Coalition, whose members include corporate travel managers.
Now the Obama administration is wading into the issue. The Department of Transportation is considering whether to require airlines to provide fee information to everyone with whom they have agreements to sell their tickets. A decision originally scheduled for next month has been postponed to May, as regulators struggle with a deluge of information from airlines opposed to regulating fee information, and from the travel industry and consumer groups that support such a requirement.
Meanwhile, Spirit Airlines, Allegiant Air and Southwest Airlines — with backing from industry trade associations — are asking the Supreme Court to reverse an appeals court ruling forcing them to include taxes in their advertised fares. The appeals court upheld a Transportation Department rule that went in effect nearly a year ago that ended airlines' leeway to advertise a base airfare and show the taxes separately, often in smaller print. Airlines say the regulations violate their free-speech rights.
At the heart of the debate is a desire by airlines to move to a new marketing model in which customers don't buy tickets based on price alone. Instead, following the well-worn path of other consumer companies, airlines want to mine personal data about customers in order to sell them tailored services. You like to sit on the aisle and to ski, so how would you like to fly to Aspen with an aisle seat and a movie, no extra baggage charge for your skis, and have a hotel room and a pair of lift tickets waiting for you, all for one price? You're a frequent business traveler. How about priority boarding, extra legroom, Internet access and a rental car when you arrive?
"Technology is changing rapidly. We are going to be part of the change," said Sharon Pinkerton, vice president of Airlines for America, which represents most U.S. carriers. "We want to be able to offer our customers a product that's useful to them, that's customized to meet their needs, and we don't think (the Transportation Department) needs to step in."
If airlines have their way, passengers looking for ticket prices may have to reveal a lot more information about themselves, such as their age, marital status, gender, nationality, travel history and whether they're flying for business or leisure. The International Air Transport Association, whose 240 member airlines cover 84 percent of global airline traffic, adopted standards at a meeting earlier this month in Geneva for such information gathering by airlines as well as by travel agents and ticketing services that would relay the data to airlines and receive customized fares in return.
"Airlines want, and expect, their (ticket) distribution partners to offer passengers helpful contextual information to make well-informed purchase decisions, reducing the number of reservations made based primarily or exclusively on price," said a study commissioned by the association.
Consumer advocates question how airlines would safeguard the personal information they gather, and they worry that comparison shopping for the cheapest air fares will no longer be feasible.
"It's like going to a supermarket where before you get the price, they ask you to swipe your driver's license that shows them you live in a rich zip code, you drive a BMW, et cetera," Mitchell said. "All this personal information on you is going out to all these carriers with no controls over what they do with it, who sees it and so on."
The airline association said consumers who choose not to supply personal information would still be able to see fares and purchase tickets, though consumer advocates said those fares would probably be at the "rack rate" — the travel industry's term for full price, before any discounts.
It's up to individual airlines whether they price fares differently for travelers who don't provide personal information, said Perry Flint, a spokesman for the international airline association.
The stakes, of course, are enormous. Since 2000, U.S. airlines have lost money for more years than they've made profits. Fee revenue has made a big difference in their bottom lines. Globally, airlines raked in an estimated $36 billion this year in ancillary revenue, which includes baggage fees and other a la carte services as well as sales of frequent flyer points and commissions on hotel bookings, according to a study by Amadeus, a global distribution service, and the IdeaWorksCompany, a U.S. firm that helps airlines raise ancillary revenue. U.S. airlines reported collecting nearly $3.4 billion in baggage fees alone in 2011.
One expense airlines would like to eliminate is the $7 billion a year they pay global distribution systems to supply flight and fare information to travel agents and online booking agents like Expedia. Airlines want to deal more directly with online ticket sellers and travel agents, who dominate the lucrative business travel market. Justice Department officials have acknowledged an investigation is underway into possible anti-trust violations by distribution companies.
Airlines also have been cracking down on websites that help travelers manage their frequent flier accounts. The sites use travelers' frequent flier passwords to obtain balances and mileage expiration dates, and then display the information in a way that makes it easier for travelers to figure out when it makes more sense to buy a ticket or to use miles.
"What the airlines are trying to do right now is reinvent the wheel so they can hold all their information close to their chest," said Charles Leocha, founder of the Consumer Travel Alliance. "As we move forward in a world of IT, the ownership of passenger data is like gold to these people."
By withholding information like fee prices, he said, "we are forced to go see them, and then we are spoon-fed what they want to feed us."

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U.S. retailers scramble after lackluster holiday sales

The 2012 holiday season may have been the worst for retailers since the 2008 financial crisis, with sales growth far below expectations, forcing many to offer massive post-Christmas discounts in hopes of shedding excess inventory.
While chains like Wal-Mart Stores Inc and Gap Inc are thought to have done well, analysts expect much less from the likes of book seller Barnes & Noble Inc and department store chain J. C. Penney Co Inc.
Shares of retailers dropped sharply on Wednesday, helping drag broader indexes lower, as investors realized they were likely to be disappointed when companies start to report results in a few weeks' time.
"The broad brush was Christmas wasn't all that merry for retailers, and you have to ask what those margins look like if the top line didn't meet their expectations," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group.
Growth was always expected to slow this season, though an improving employment picture and rising home values had helped mitigate the worst fears. But then Superstorm Sandy hit the East Coast in late October, mild weather blunted sales of winter clothing and rising concern about the "fiscal cliff" became more of a reality, dragging down already-pessimistic forecasts.
The latest sign of trouble came from MasterCard Advisors Spending Pulse, which reported holiday-related sales rose 0.7 percent from October 28 through December 24, compared with a 2 percent increase last year.
The preliminary estimate from SpendingPulse was in line with other estimates showing weak growth during the holiday season, when retailers can book about 30 percent of annual sales - and in many cases, half of their profit.
"It has been a very uneven industry performance, probably at least for the last year, and that certainly continued into the holiday season," said Michael Niemira, chief economist at the International Council of Shopping Centers, in an interview with Reuters Insider.
The latest holiday season could end up the weakest since 2008, during the last recession, when sales actually declined. The National Retail Federation had previously predicted 4.1 percent sales growth this year, versus a 5.6 percent increase a year earlier.
Markets reacted sharply to the gloomy outlook.
The S&P retail index closed down 1.7 percent, and 14 of the top 20 decliners in the broader S&P 500 were retailers or consumer brands.
INVENTORY CRUSH
To be sure, the actual percentage change in holiday sales can differ substantially, depending on which group is calculating the figure. SpendingPulse and the National Retail Federation, for example, look at different categories, which can cause some variation in their forecasts.
Regardless of how bad the figure is, one concern for retailers is that soft sales will mean an excess of inventory that will force some to slash prices.
The day after Christmas, retailers were using deep discounts to lure shoppers. Among other brands, Barnes & Noble offered 50 percent discounts in stores via email promotions on Wednesday, while Ann Inc had half-off at its Loft stores, and Macy's Inc's Bloomingdale's promoted discounts of up to 75 percent in some cases.
At a Target store in New York City's Harlem neighborhood, most shoppers seemed to be spending more on groceries, toys and small gifts than on gadgets or clothes.
Despite discounts of 50 percent, there were few takers for Jason Wu glass ornaments, Oscar de la Renta canvas totes and other designer goods launched under the mass merchant's tie-up with upscale chain Neiman Marcus.
Even in a good year, retailers would have offered discounts to lure customers, but some suggest a weak year has now forced their hands.
"Retailers are no longer chasing sales, they are chasing inventory management. That means the discounts that they would have liked to be at 50-60 (percent) off have climbed to 75 to even 80 (percent) off," said Marshal Cohen, chief industry analyst at The NPD Group.
This week's cold, snowy weather on the heels of a warm start to December could spur people to use the gift cards they received or their remaining discretionary income to buy everything from jackets to snow blowers, said Evan Gold, senior vice president of client services at Planalytics, which tracks weather for businesses including retailers.
In December, he said, "people are out spending anyway, weather can trigger what you purchase, not if you purchase, but what you purchase."
SANDY AND CLIFF
A variety of factors were thought to be at fault for the weak season, starting with Superstorm Sandy, which depressed sales in the U.S. Northeast in late October and early November.
Sales recovered in the second part of November, with early hours and promotions helping drive traffic during the "Black Friday" weekend after Thanksgiving, analysts said.
But there was a deep lull in early December as a winter storm in parts of the United States may have limited sales, said Michael McNamara, vice president of research and analysis at MasterCard SpendingPulse.
On top of that, there were fears that taxes will rise in the new year if Washington cannot negotiate a solution to the end-of-year "fiscal cliff" dilemma.
A recent Ipsos poll for Reuters found that only 17 percent of shoppers were spending less due to cliff fears, though analysts said the damage was still done.
"The government usually does not have a role in holidays but this year they did. They got right in the midst of it, the timing couldn't have been any worse," NPD's Cohen said.
BRIGHT SPOTS
One bright spot has been online sales, which continue to grow at a faster pace.
On Christmas Day, online sales jumped 22.4 percent, outpacing the 16.4 percent increase in 2011, according to IBM Digital Analytics Benchmark, which tracks more than 1 million e-commerce transactions a day from 500 U.S. retailers.
Whether online or off, some of the winning retailers were expected to be Wal-Mart, which attracted shoppers with early deals on the night of Thanksgiving and kept its focus on value, and apparel chains like the Gap, whose bright sweaters were successful, according to analysts.
Toys sold well, and hot items that were harder to find later in the season included certain Mattel Inc Barbie dolls and LeapFrog Enterprises Inc's LeapPad2 tablet computer, according to B. Riley Caris analyst Linda Bolton Weiser.
For retailers that have struggled, analysts said all hope was not lost. Many have fiscal quarters that end in January, so they still have time to benefit from a post-Christmas rebound. Because Christmas fell on a Tuesday, some said they could even see a boost this week from people who have extra time off.
"There's still a little bit more time to go until the holiday season is officially over," Morningstar analyst Peter Wahlstrom said.
Wal-Mart shares ended down 0.8 percent at $67.99 on Wednesday, while Macy's shares were down 1.1 percent at $37.11, Barnes & Noble shares were down 3.5 percent at $14.49, Amazon.com Inc shares ended 3.9 percent lower at $248.63, and Ann Inc shares lost 5.1 percent to close at $32.06.

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