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Retailers' modest Oct. may spur holiday deals

Shoppers took a breather in October, resulting in lackluster gains for retailers and raising the stakes on what is sure to be a competitive holiday season.
/ Source: The Associated Press

Shoppers took a breather in October, resulting in lackluster gains for retailers and raising the stakes on what is sure to be a competitive holiday season.

For Christmas shoppers, that means that heavy discounts will be coming early and often.

"The deals will be so attractive that shoppers may not want to wait," said John Long, retail strategist at Kurt Salmon Associates. "This is going to be a great (time) to be a consumer."

For October, the International Council of Shopping Centers index measuring revenue at stores open at least a year showed a 1.6 percent increase in October, the weakest performance since April's 0.8 percent increase. October's figure represented a slowdown from September, when it rose 2.6 percent. It's also below the average pace of 3.2 percent since the start of retailers' fiscal year, which begins in February.

Revenue at stores open at least a year is considered a key indicator of a retailer's health because it excludes results from newly opened stores. The index excludes Wal-Mart Stores Inc., which doesn't report monthly sales, but includes drugstores like Walgreen Co., which announced disappointing figures.

Behind October's results were clear winners and losers. Luxury stores including Neiman Marcus and Saks Inc. were the best performers as the affluent have recovered from the recession more quickly than everyone else amid a rebounding stock market. Macy's Inc., powered by its sweeping initiatives to tailor merchandise to local markets, had a decent performance, outshining rivals like J.C. Penney and Kohl's Corp., both of which suffered declines. It raised its earnings outlook.

Warehouse club operators such as Costco Wholesale Corp. fared well. Target Corp. posted a small gain slightly above Wall Street estimates. Target noted that essentials are selling better than nonessentials.

The big factor depressing October sales was the unusually warm weather, said Mike Niemira, chief economist at International Council of Shopping Centers. He estimated that depressed October sales by one percentage point. Last month was the warmest October in 15 years, according to forecaster Weather Trends International.

For the holidays, competition already looks fierce. Many merchants have started pushing early morning discounts on holiday gifts. They're also expanding layaway programs to help shoppers stretch their gift buying. Sears even plans to open its doors on Thanksgiving Day.

TV viewers are being bombarded even earlier with holiday commercials. Best Buy Co., for example, started its holiday TV ad campaign Monday; last year, it began Nov. 11.

But the question remains: Will Americans do what they did last year: wait until the day after Thanksgiving, when the season unofficially kicks off — and then take another shopping break until the final days before Dec. 25, when the deals are often even better.

October is typically slow because it's between the back-to-school and Christmas seasons. But shoppers' reticence this year had retailers pushing discounts even more.

While the arrival of cooler weather should help perk up sales, shoppers are expected to remain reluctant to spend with unemployment stuck near 10 percent.

So far, retailers cite strong sales of some toys, such as Mattel Inc.'s Loopz, which uses motion detection technology in memory games, and Blip Toys' Squinkies, tiny collectible figures that come with toy vending machines. Electronic-book readers and Apple's iPad are expected to fare well. But looming over the holiday season is a TV glut, which is expected to put more pressure on pricing. And clothing retailers are likely to face a tough season.

Among the deals being offered so far to lure early spending:

  • Starting Friday, Wal-Mart will be discounting a number of top toys, including WowWee's Paper Jamz Guitar and Loopz.
  • Toys R Us promised its deals will be bigger than a year ago. This weekend, the toy seller is also hoping to draw in crowds who want to grab the new Justin Bieber doll, debuting Sunday. Toys R Us said right now it's the only store that has them on hand, according to Kathleen Waugh, company spokeswoman.
  • and Sears Holding Corp are both already offering what they're pitching as "Black Friday" deals. For example, this Friday, the deals at Sears Roebuck include up to 60 percent off the entire stock of jewelry.

A few weeks ago, Sears started promoting in TV commercials an expanded layaway program that now offers shoppers the option to spread out payments over 12 weeks instead of eight weeks.

"They're really trying to stretch out the holiday season as best they can," said Carl Steidtmann, chief economist at Deloitte Research.