Retailers may reach for deeper discounts

Now that the Thanksgiving weekend is over, how much will shoppers see in the way of markdowns – and how soon?

Monday started the quiet time for the holiday season at the nation’s traditional retailers, and it was also the official start to the holiday period for online merchants. With fewer shoppers in the stores, many nervous merchants will be tempted to start extreme discounts early, beyond the markdowns already planned for the season.

“My sense is that stores will take stock of how the weekend went and see how the first week progresses,” said Ken Perkins, president of Retail Metrics LLC, a research firm in Swampscott, Mass. “If the traffic drops off a cliff, then stores will have to be more proactive. There were some clear lessons from last weekend. If you have bargains, then shoppers will flock to your store. If not, they will be more reluctant.”

Amid an improving but still challenging economy, many retailers offered discounts over the weekend that were even more aggressive than at the start of last year’s holiday season. But overall, the weekend’s results were sluggish, according to ShopperTrak RCT Corp., which monitors sales at more than 45,000 retail outlets. It reported that sales for Friday and Saturday combined fell 0.5 percent to $13.41 billion, from $13.48 billion from the same period a year ago.

The big winners were discounters including Wal-Mart Stores Inc. and electronics chains, which attracted shoppers in the early morning hours Friday with discounted digital cameras and TVs. Mid-price stores like J.C. Penney Co. Inc., and Kohl’s Corp., which also plied shoppers with early openings and big discounts on sweaters, pulled in the crowds as well. But plenty of other mall-based apparel stores were left behind, except for teen stores such as Abercrombie & Fitch Co., which has been able to attract a loyal following without having to resort to such measures.

Pedestrians walk past a store window display along State Street on Monday in Chicago. Some of the nation's retailers may be dipping into their pockets to offer further discounts in the coming weeks.

At traditional stores, consumers probably shouldn’t expect any big deals on consumer electronics within the next week or two because that merchandise category did well during the weekend, said John Morris, an analyst at Harris Nesbitt. But he believes mall-based apparel stores, which have been struggling, will discount clothing beyond what was already planned.

Analysts consider Gap Inc., Limited Brands Inc. and Ann Taylor Stores Corp. likely candidates for big markdowns.

Shoppers could see prices on jeans and cashmere sweaters, which have been languishing, reduced anywhere from 40 percent to 50 percent at these stores in the next two weeks, Morris said.

“They (apparel stores) will need to speak the language of the consumer,” he said.

Perkins said that how deep the overall discounting will be this season will depend on the impact of Wal-Mart, which stumbled in the 2004 holiday season but did very well this weekend. The big retailer’s recent upgrade of its fashion, home furnishing and electronic merchandise is forcing rivals to keep up.

“Wal-Mart is going to keep pressure on all the competitors to stay promotional,” he said.

That could hurt fourth-quarter earnings. Perkins estimates the earnings growth rate for the 137 merchants he tracks is up 12.7 percent so far this year, compared to 8.6 percent a year ago. But after the holiday season, that rate could slip to 6 percent, if stores are forced to slash prices more than planned.