U.S. retailers brace for another year of weak holiday sales

McClatchy NewspapersNovember 24, 2009 

WASHINGTON — Most economists agree that the nation's deep recession is over, yet that isn't bringing much cheer to retailers. For the second consecutive holiday season, they're bracing for declining sales.

"We're expecting (holiday) sales to be down 1 percent this year, which, believe it or not, represents a stabilizing of the (retail) industry," said Scott Krugman, a spokesman for the National Retail Federation, the trade group for major retail chains.

Many retailers suffered through a year-over-year drop in sales of at least 3 percent last holiday season, so this year isn't expected to be as bad. That's a sign of how bad the U.S. economy has been: Less bad now passes as good news for retailers.

"They're not looking for anything great," said William Dunkelberg, the chief economist for the National Federation of Independent Business, whose members include smaller, stand-alone retailers. "We still have more firms that think that over the next few months their retail sales volume will fall rather than rise. That's not a good sign."

Retailers have slashed costs and reduced inventory throughout the year and enter the peak holiday season lean, both in staffing and in the stockroom. Still, the aggressive cost cutting, inventory reduction and staff downsizing won't mean anything unless customers open their wallets.

"This year retailers went into the season with their eyes wide open. Consumers are still hibernating, we have double-digit unemployment, housing is still very much in flux and consumers will need a lot of incentive to come out and shop," Krugman said.

Retailers, he said, plan to provide lots of incentives on the day after Thanksgiving, or "Black Friday," the traditional start of holiday shopping. To create buzz, retailers are said to be preparing "door buster" specials that range from $3 small appliances, high-definition televisions for less than $300 and GPS devices for automobiles for less than $60.

"We know this season's Black Friday will be more promotional then ever," Mike Boylson, the executive vice president and chief marketing officer of J.C. Penney & Co., said in a statement that accompanied third-quarter earnings Nov. 13.

Even with the promotional push, J.C. Penney told analysts that the company expects sales in the final three months of this year to drop 3 percent to 5 percent below last year's final quarter.

Toys R Us stores are opening their doors seconds after midnight on Black Friday in a bid to provide shoppers with access to deals "five hours earlier than ever before," the company announced last Thursday, adding that it would offer 70 "door busters" in the very first hour of Black Friday.

For all the hype, Black Friday is just one day in the holiday season. Surveys of consumers confirm why retailers expect such a challenging year. In its annual survey of holiday intentions, the National Retail Federation found in late October that 84.2 percent of Americans expect to spend less this holiday season. They're expected to spend an average of $682.74, a drop of 3.2 percent over last year.

Given such stark realities, any surprise this season would be on the upside, since consumers have spent the past 18 months paying down their debt and bolstering their savings in case they join the one in 10 working-age Americans who are without jobs. There could be a suppressed demand.

"There's still an element of unknown," Krugman said.

Maybe. When reporting their third-quarter earnings, however, some of the largest retail establishments lowered expectations.

"In light of the current and projected economic environment and expectations for a highly promotional holiday season, Target remains cautious about fourth-quarter performance and is planning conservatively," the company said in a statement Nov. 17.

Retail consultants such as Ted Hurlbut, a Boston-based consultant on retail sales strategy, aren't betting on a December surprise.

"I don't see anything out there that suggests to me otherwise," he said, pointing to volatile indicators of consumer sentiment and an especially tough season for smaller, independent retailers. "I'm not seeing anything that suggests there's an upside surprise."

For many larger retail chains, the strategy this year is called "managed scarcity," making items scarce so that less product moves but at a higher price.

"Customers are going to be sent the message that you'd better buy it, because it may not be here when you turn around," Hurlbut said. "The theory is that it's going to prop up prices because the merchandise won't be discounted as much as it was" last year.

For retailers who offer seasonal clothing, that plan translates into fewer units for sale per style, Hurlbut said. The goal is to have higher profits on a lower volume of sales, without a huge amount of merchandise left over that has to be deeply discounted in January.

"I think you might start to see more (newspaper) pieces about the second or third week (of the shopping season) that customers can't find stuff," he said.

ON THE WEB

National Retail Federation holiday survey

Hurlbut's retail blog

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