Desperate retailers seek holiday season rescue
Posted: 22 November 2009 1434 hrs

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WASHINGTON: US retailers are taking desperate measures to spark holiday sales in the face of what promises to be another troubled year-end shopping season.

Merchants are furiously working to ramp up consumer interest ahead of "Black Friday," on November 27, the day after the Thanksgiving Day holiday that marks the traditional kickoff of the holiday gift season.

Some are promising price cuts of 50 per cent or more on some hot electronics, and planning for big events to bring out shoppers for big sales promotions.

Analysts say retailers are struggling to find the right balance of inventories and discounts while cautious consumers are hesitating about how much and when to buy.

Clothing retailer Gap has started early with 25 per cent discounts, while Wal-Mart and Target are offering online shoppers free or discounted shipping on many items. JC Penney is boosting Black Friday promotions and will open its doors at 4 am for the best deals.

Steven Dennis, executive-in-residence at Southern Methodist University's JC Penney Center for Retail Excellence, said price cuts may be deep but are not as broad as some might expect.

"I think most retailers are desperate for market share," he said. "Everyone seems to have the view that business is gong to be flat and it is a battle for market share."

But Dennis said retailers are not in the dire position of last year, when they had large amounts of inventory. So price cuts will mainly be on a few high-profile items to get consumers into the store "and hope they get a disproportionate share of their spending."

"I don't think deals will be so widespread."

Dennis said that with retailers focused on lean inventories, most will be able to post profits even if sales are lower than in 2008.

Diane Swonk, chief economist at Mesirow Financial, said she sees overall holiday retail sales growing 1.6 percent from last year, but that this will essentially be flat when adjusted for inflation.

"The quality of spending this holiday season will still be dismal, however, when compared to Christmases past," she said.

Swonk said retailers who don't join the heavy discounting "might be disappointed with the results."

"Consumers were already playing chicken with retailers to get better discounting ahead of the recession and there is no reason to believe they won't be even more cautious about paying full price now, given the sorry state of their balance sheets."

Scott Hoyt at Moody's Economy.com agrees the outlook is grim, with unemployment running above 10 percent.

Retail spending "will look good compared with last year, but poor by any other standard," Hoyt said.

"Though it will be the first non-recession holiday shopping season in three years, 2009 will again be trying for retailers," he added.

"In an effort to reduce discounting, retailers have cut inventories to well below year-ago levels and are expected to keep them low through the holiday season. If merchants have underestimated demand, they could end up with bare shelves, losing sales."

Jon Ogg at 24/7 Wall Street said retailers are anxious ahead of Black Friday -- which by tradition is the day in which merchants swing from the red into profit for the first time in the year.

"This is the day that retailers look forward to all year and critically depend upon as an anchor to how each retailer's full year earnings results turn out," he said.

"What is amazing is just how much of the deal-making is already out before the holiday season starts as retailers key off of each other. It is almost impossible to avoid thinking how such a promotional Christmas and holiday season in 2009 is going to add pressure to margins at almost all of the first-line retailers."

A survey by Visa USA found consumers plan on spending US$161 less on holiday shopping than last year and US$368 less than they planned two years ago.

In one sign of the times, several retailers have brought back the layaway plan, which enables customers to put down a deposit to hold merchandise until the full amount can be paid. Sears, Kmart and Toys R US are among those offering the plan, and a new online version of the program is offered through eLayaway.com.

One reason for this is that consumers are stretched and may have less acess to credit.

A survey for the National Retail Federation found 24.9 per cent of holiday shoppers will pay for gifts this year with cash, up from last year’s 22.8 per cent. Also, 42.5 per cent of shoppers plan to pay primarily with debit or check cards and those using credit cards is expected to fall 10.1 per cent.

"With many holiday shoppers focused on spending within their limits, it's no surprise that fewer people will be relying on credit cards this year," said Tracy Mullin, the NRF's president and chief executive.

- AFP/yb