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December 20, 2012

Prices slashed to salvage season

Discounts abound for the final weekend before Christmas

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NEW YORK (AP) — When it comes to fat holiday discounts, better late than never.

This holiday shopping season, many stores haven't been offering the same blockbuster deals as they did last year. Instead, they've dangled offers of free shipping and no-fee layaways to lure shoppers.

But during the final weekend before Christmas, shoppers should expect to see more "70 percent off" and "buy one, get one free" signs as stores try to salvage a season that so far has been disappointing.

Teen retailer Aeropostale Inc. has slashed prices on everything in its stores by 60 percent. Rival teen chain American Eagle Outfitters is offering 40 percent off all purchases. Saks Fifth Avenue is cutting prices on some designer clothing up to 60 percent. And Children's Place, a children's clothing chain, is offering up to 75 percent off on its website.

The sales are aimed at luring shoppers like Jennifer Romanello, who lives in Rockville Centre, N.Y. Romanello, a publicity consultant, is planning to spend $400 less on holiday gifts this season as she spent a year ago. She said she'll be looking for deep discounts when she heads to stores this weekend.

"I just want to be cautious," said Romanello, 47, who has two children, ages 12 and 15. "If it's a great deal, I will consider."

The price slashing may be good news for shoppers, but it hurts stores. They're profits likely will suffer in their last-ditch effort to boost sales during the two-month holiday shopping period, a time when they can make up to 40 percent of their annual revenue.

To be sure, stores have been offering discounts throughout the season, but they resisted the blockbuster deals that ate away at profits last year. In fact, promotions and other discounting efforts were down 5 percent through Dec. 10 compared with last year, according to BMO Capital Markets, which tracks promotions at about two-thirds of mall stores. But sales have been slow, so stores will have to rely even more on the final days before Christmas to make up the difference.

ShopperTrak, which counts foot traffic and its own proprietary sales numbers from 40,000 retail outlets across the country, said Wednesday that the number of shoppers in stores for the week that ended on Saturday fell 4.4 percent from the year-ago period, while sales declined 4.3 percent. As a result, the company said it would slash its sales forecast to a 2.5 percent increase, down from the 3.3 percent growth it had initially predicted. The company declined to give dollar figures.

And online sales, which have been seen as a beacon during the season, have been below expectations, too. Online sales are up 13 percent to $35 billion from Nov. 1 through Dec. 16, according to comScore, an online research. That pace is below the forecast of 17 percent for the season.

"It feels like the steam is out of the holiday since Black Friday," said Bill Martin, ShopperTrak's co-founder.

Indeed, many shoppers have been weighed down by concerns about their financial future. Some worry about the weak U.S. job market, while others fear the possibility that a stalemate between Congress and the White House over the U.S. budget could trigger tax increases and spending cuts known as the "fiscal cliff" next year. That would mean less money in shoppers' pockets.

Wal-Mart CEO Mike Duke said during a speech in New York City last week that a recent poll of shoppers of the world's largest retailer found an overwhelming majority are aware of the threat of higher taxes, which is leading some to cut back on holiday buying. And consumer confidence fell sharply this month, according to a survey by the University of Michigan, partly because of concerns that taxes will rise next year if no deal is reached.

In addition to economic worries, a quirk in the calendar --the holiday season is four days longer than a year ago and includes a full weekend right before Christmas — may be tempting shoppers to wait longer to buy gifts. According to a survey of 1,000 consumers conducted by the International Council of Shopping Centers and Goldman Sachs, 64.9 percent of shoppers surveyed had finished their holiday buying as of last Sunday. That's lower than the 70.3 percent during the same time a year ago.

"It's coming down to the wire," said David Bassuk, managing director and co-head of the retail practice at AlixPartners. "It's going to require retailers to be more aggressive with their promotions than they were hoping heading into the weekend."

Still, time is on stores' side. Six of the top 10 spending days for the holiday season are still ahead, including the Saturday before Christmas, which is expected to be the second biggest shopping day of the year. And last year, the final 10 days before Christmas generated nearly 24 percent of the holiday sales, according to MasterCard Advisors' SpendingPulse, which tracks spending across all payments including cash.

Stores don't typically discuss their plans for markdowns during the holiday season, but some retailers said that they remain hopeful that shoppers will spend briskly in the final days.

Macy's, which runs Macy's and Bloomingdale's stores, said it does not plan to add any unplanned discounts in the days leading up to Christmas. But the chain is planning for the first time to keep most of its stores open around the clock for the last weekend before Christmas.

"We're staying with the (promotional) calendar that we planned," said Jim Sluzewski, a Macy's spokesman.

And at Takara, a clothing and jewelry store in Oak Park, Ill., owner Takara Gudell said holiday sales were up about 3 percent this year compared to a year ago, but said brisk business is just getting started for the season.

But Gudell said she's counting on the final days to be the "big rush."

"Christmas will still come," she said.

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AP Business Writer Tom Krisher in Detroit and AP Writer Ashley Heher in Chicago contributed to this report.

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