||Mid-Holiday Shopping Lull Pushing Retailers to Add Promotions
The shopping lull that typically sets in after Black Friday weekend and eases just before Christmas is becoming more pronounced this year as economic uncertainty -- including an impending fiscal cliff -- is keeping shoppers at bay.
Faced with still needing to make their holiday sales numbers, brick-and-mortar retailers are stepping up their promotions to deal with the lackluster customer demand and rising competition from their traditional rivals and heavy competition from online merchants.
"It is clear that unseasonably warm weather, uncertainty in Washington, deteriorating sentiment, and the post-Thanksgiving lull have driven markdown and promotional activity past the point of anyone's expectations just one month ago," Credit Suisse analyst Michael Exstein said.
Even deep discounters, which sell seasonal items such as wrapping paper, tinsel and holiday lights, are feeling the pressure.
"Like most retailers, I have rarely seen weekly sales fluctuate as much as we have seen recently," Dollar General Corp. Chief Executive Richard Dreiling said Tuesday on a conference call. "Our core customers are concerned about (the) financial outlook, which is resulting in a dynamic that is driving the current competitive environment to be more promotional."
The winter holidays are big business for retailers, with some doing as much as 40% of their annual sales during the period. Sluggish demand can be devastating in terms of sales that aren't booked and margins that are squeezed because of markdowns.
For their part, trade groups and other retail trackers are so far keeping with their holiday sales projections. The National Retail Federation expects a 4.1% rise in sales over the holiday period of November and December. The International Council of Shopping Centers expects chain store sales to increase 3%. Deloitte's annual forecast calls for a 3.5% to 4% rise.
"There has been a slowdown at malls," said Jesse Tron, spokesman for the International Council of Shopping Centers. "There has been, considering sales take a dip after Black Friday and before the final Christmas push."
Gabriella Santaniello, analyst at Wedbush Securities, said Aeropostale Inc., Gap Inc.'s Old Navy and American Eagle Outfitters Inc. are stepping up their promotional approach.
Aeropostale has gone back to its 60% off everything in the store seen Black Friday, from 50% off more recently, Ms. Santaniello said. Old Navy was offering $15 off a purchase of $50 or more from Dec. 6 to Dec. 9, deeper than last year's "20% Off Everything" for the same duration, she said.
"Retailers are probably being more promotional than they want to be" as a result of the lull, said Ms. Santaniello. "They are having to promote in-line with last year and last year was a problem because it, too, was very promotional."
"If people respond, that's fine," Ms. Santaniello said. "The big issue is no one shows up for it. Then the day after Christmas you're marking it down...It will impact your margins and then the pressure is on to get rid of it before the next season."
Mr. Exstein of Credit Suisse said his checks found markdown activity was especially intense at lower-end retailers such as Kohl's Corp. and J.C. Penney Co., and even the higher end, at Saks Inc. Kohl's and J.C. Penney didn't respond to requests for comment. Saks spokeswoman Julia Bentley said "to date in the fourth quarter, the promotional and clearance calendar is similar to last year."
Edward Yruma, retail analyst at KeyBanc, said he is seeing promotions at individual stores operated by Target Corp., Old Navy and Bon-Ton Stores Inc., among others.
"We think this may point to a need to jump start weak store traffic," Mr. Yruma said. "Overall, we continue to become increasingly concerned about holiday sales...We continue to see elevated promotions across the space."
Gap spokeswoman Emily Russel said improvements in products "is allowing us to pull back a bit on promotions." But, Ms. Russel added: "Given the important holiday selling season, we fully expect the environment to continue being heavily promotional and competitive, and are prepared to compete across all our brands and channels." A Bon-Ton spokeswoman didn't respond to a request for comment.
In the case of Target, holiday shoppers can expect the retailer "to be competitive on price and offer compelling promotions throughout the season," spokeswoman Jenna Reck said. "We are also planning inventory to strike a balance between driving sales and remaining profitable." Ms. Reck didn't address whether Target has become more promotional.
(Source: The Wall Street Journal, 12/11/12)
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