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Why Christmas in July Is a Bad Retail Idea

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.

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 ) ( 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 )

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.

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