Wednesday, November 18, 2009

Christmas Shoppers Hold Out Till December

“U.S. consumers say they are not likely to shop without the big price cuts they saw last year,” says a new Reuters story about holiday shopping. The story cites an America's Research Group survey that suggests that consumers are not eager to go shopping for presents.

A repeat of last year’s discounts, with “after-Christmas” sales starting the day after Election Day, would be impossible, though. Last year, retailers had bloated inventories and had to cut prices as much as their competitors to get shoppers into the stores. The result was the most aggressive discounting in any Christmas shopping season ever.

This year, retailers aren’t in any mood to risk a repeat of that, and they couldn’t get the financing to overstock their shelves even if they wanted to. The downward spiral at CIT Group, traditionally the largest inventory lender to smaller retailers, has sharply limited how much some stores can stock this year, while losses at large retail chains such as Best Buy also see them carrying much thinner inventories.

Without huge inventories, there can’t be huge sales. Stores will be running out of many items before Christmas even without price cuts. With the thinnest Christmas-season inventories ever, a real 70-percent-off sale, of the sort that we saw so often last year, could mean that the shelves are empty before you arrive in the store.

To try to get shoppers to buy, retailers will do their best to create the illusion of deep discounts by showing exotic-looking items with prices so high that they can easily take 50 percent off, then 75 percent. This will work to an extent, but many shoppers are likely to hold out for real bargains, and they may end up buying nothing at all, or only token presents for their family members.

Some of the shoppers who say they insist on deep discounts in mid-November are only bluffing, or kidding themselves, and may end up buying anyway when mid-December rolls around. That could make this year the latest Christmas shopping season in more than a decade. Christmas shopping has been coming earlier and earlier in recent years, with the midpoint of the season hitting on Black Friday in 2007 and the weekend before Thanksgiving in 2008. This year, though, as shoppers hold out, the midpoint of the season might not come until the middle of December.

The lack of deep discounts at least means retailers that plan the season well won’t get stung the way they were last year. A retailer that plans for sales that are 10 percent less than last year may make a nice profit, despite the decline in revenue. And retailers that plan for sales that are about the same as last year will have a decent shot at breaking even.