Toys `R' Us, Retailers Offer Discounts for Holidays (Update4)
By Oliver Staley and Joseph Galante
Nov. 23 (Bloomberg) -- Shoppers crowded U.S. stores in search of discounts after Thanksgiving as retailers braced for the slowest holiday shopping season in five years.
Toys ``R'' Us Inc. stores opened at 5 a.m. around the country today, while Macy's Inc. started at 6 a.m. About 400 customers lined up outside a CompUSA Inc. electronics store in Manhattan yesterday for a 9 p.m. holiday sale.
``We think it's going to be a whopper of a day,'' Toys ``R'' Us Chief Executive Officer Gerald Storch said today in an interview. Macy's is being ``very aggressive'' with discounts across its chain to ``get the traffic in the store,'' CEO Terry Lundgren said.
Sales in November and December may rise 4 percent this year to $474.5 billion, the slowest gain since 2002, according to the National Retail Federation in Washington. In a survey conducted by Discover Financial Services, 55 percent of shoppers said they will spend less this year as they contend with higher gas prices and the worst housing market in 16 years.
Holiday discounting ``started earlier, it started more aggressively,'' said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail consulting firm. ``It's a reflection of a very weak consumer and horrendous retail sales.''
The day after Thanksgiving is called Black Friday because at one time it was considered the day retailers turned profitable for the year. It will probably be the busiest shopping day this year, Chicago-based ShopperTrak RCT Corp, predicted.
Black Friday Rush
More than 132 million shoppers may shop this weekend, the NRF said. Last year, 58.9 million people went shopping on Black Friday, and 49 million the next day.
George Rojas, 21, skipped Thanksgiving dinner and was first in line at a CompUSA store on Broadway in New York City yesterday. He was hoping to buy a Hewlett-Packard Co. laptop computer for $499.99, a $300 discount.
``I think I'm getting a really good deal,'' he said.
Aggressive promotions and sales can attract customers, although it doesn't necessarily translate into higher profits, said Lauri Brunner, a retail analyst at Thrivent Investment Management in Minneapolis, with $70.6 billion in assets.
``The retailers are trying to extend the season by doing two-day sales and opening at 4 a.m.,'' Brunner said Nov. 21. ``The retailers are trying to jumpstart sales growth, but it might come at the expense of profit.''
Missed Estimates
Target Corp., the second largest U.S. retailer, Limited Brands Inc. and Dillard's Inc. reported quarterly earnings this week that missed analysts' estimates as consumer spending slowed. J.C. Penney Co. and Kohl's earlier reduced profit predictions for the holidays.
On Nov. 19, the Federal Reserve lowered its growth forecast for 2008. The U.S. gross domestic product will increase 1.8 percent to 2.5 percent next year, the central bank said, lower than the 2.5 percent to 2.75 percent it predicted in July.
Investors say declining home values may hurt many of the discount retailers' core customers: young shoppers who are furnishing their own homes and can no longer count on borrowing against their equity. Others face increases in monthly payments from adjustable-rate mortgages.
``We've got a very ugly picture out there with the consumer,'' said Howard Davidowitz, a retail analyst in New York. ``We're going to have a terrible holiday, and it's going to get a lot worse after the holiday.''
According to the Discover survey, 36 percent of consumers had an unfavorable opinion about the economy.
Limited Immunity
Retailers that cater to wealthy clients may fare better than department stores and discounters this year, analysts said, although they may not be immune to the slowdown in consumer spending.
Earlier this week, Nordstrom Inc. and Saks Inc. beat analysts' estimates for third-quarter profit, and said they were well-positioned for the holiday season. Their top executives said the luxury consumers were still spending at the highest prices.
Saks Chief Executive Officer Stephen Sadove said on a conference call this week that his chain, which sells Chanel, Louis Vuitton and Gucci merchandise, was seeing its ``aspirational'' customers rein in spending.
All retailers will need to offer customers deals to attract them from competitors, Ellen Davis, senior director at the NRF, said Nov. 21.
`Challenged' Retailers
``Retailers this year are going to be challenged to provide sales and incentives that make shoppers want to buy,'' she said. ``In previous years they may have wanted to shop some place where they had a great experience; this year they are telling retailers they are looking for value.''
Consumers would be wise to skip the Black Friday events, analysts said.
``We've seen an indication that it's going to be very promotional out there, and shoppers are savvy,'' Daniela Nedialkova, an analyst at Atlantic Equities LLP in London. ``The closer it gets to Christmas, the more markdowns there will be.''
To contact the reporter on this story: Oliver Staley in New York at ostaley@bloomberg.net ; Joseph Galante in New York at jgalante3@bloomberg.net .
Last Updated: November 23, 2007 08:56 EST |
