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Malls, stores brace for holiday madness

Retailers are trying to lure consumers into their stores earlier than ever, hoping to lock in profits for the crucial holiday sales season.
With many retailers deriving half their annual profits during the holiday season, the race is on to lure shoppers to the mall.
With many retailers deriving half their annual profits during the holiday season, the race is on to lure shoppers to the mall.Ed Bailey / AP file
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The Thanksgiving turkey is not even in the oven, but the annual game of “chicken” already is under way at the nation’s shopping malls, retail stores and online outlets.

Retailers, many of whom earn half their annual profits in the final two months of the year, are trying to lure consumers into their stores earlier than ever, hoping to lock in sales well before the shopping mayhem begins on “Black Friday,” Nov. 26.

Meanwhile millions of consumers will bide their time well into December before they begin shopping in earnest. Some are waiting for holiday bonuses. Others are natural procrastinators, like Melissa DelaCalzada of San Diego.

“Normally I don’t like to go to the malls,” said DelaCalzada, 37. “But all the decorations and the music — that for me makes the shopping experience festive and fun. I definitely get sucked into the whole thing.”

DelaCalzada probably will hit the malls in the final days before Christmas, spending up to $1,000 on gifts for her 10 nieces and nephews, as well as some adult friends and relatives. Often she will spend more on overnight shipping to her far-flung family members than on the gift itself.

Shopping at the last minute, she will not be paying too much attention to sale prices. “The important thing is just to get what they want,” she said. For the retailer, she said with a chuckle, “I am the prey.”

As the days count down to Christmas, last-minute shoppers like DelaCalzada will keep retailers on edge, and analysts are warning them to keep their expectations modest. A post-election surge in consumer confidence and strong growth in jobs last month could boost sales. But many consumers, especially in the Northeast, are likely to be chastened by high bills for heating oil and gasoline.

“I think it will be an OK holiday season — not quite as robust as last year’s, but still a pretty good year,” said Carl Steidtmann, chief economist for Deloitte Research. He projects that sales of general merchandise, excluding food, will be up about 5.5 percent to 6 percent this year, a bit slower than the 7.25 percent growth seen last year, which was the best result since the boom year of 1999.

This year will suffer from an absence of the tax cuts and mortgage refinancing that put extra cash in the pockets of many consumers last year, Steidtmann noted. Moreover, despite a pickup in employment growth after a summer slowdown, wage growth has not quite kept up with inflation, he said.

Merrill Lynch retail analyst Dan Barry is forecasting sales growth of 5.1 percent, an outlook he described as “lackluster.”

“Slowing consumer spending, rising gas and heating oil prices and (a) tough comparison make a strong Christmas shopping season almost impossible,” he said in a research report.

Retailers are working to smooth out the bumps in the year-end shopping calendar, but results have been mixed, analysts said. The hype surrounding Black Friday draws droves of shoppers to the malls – stuffed with turkey but hungry for heavily promoted bargains like last year’s (possibly apocryphal) $29 DVD player.

But after that single day of huge sales, retailers typically see a long quiet period until shoppers rush back in the final week before Christmas. “Retailers over the last decade have noticed this pattern but have generally been unable to break the customer’s increasingly strong tendency to procrastinate,” Barry said.

The rise of gift cards, which accounted for 8 percent to 10 percent of holiday sales last year, pushes much of the real buying activity into January, when merchandise tends to be heavily discounted.

Retailers are fighting back by promoting holiday sales aggressively as soon as the last Halloween jack-o’-lantern is extinguished, pulling sales earlier into November, said longtime industry analyst Michael Niemira.

Last year retailers “had a pretty good November, and that gave them a cushion for December,” said Niemira, chief economist for the International Council of Shopping Centers. That cushion allowed retailers to avoid the temptation for discounting when sales hit a “soft patch” in early December, he said. “It turned out to be a pretty good season.”

Overall, sales in November and December account for about 23 percent of the nation’s annual $900 billion in general retail sales, down from about 25 percent in the 1980s. But that figure masks the enormous impact of the nine-week period on profits, especially at specialty retailers and department stores.

Williams-Sonoma, which also owns Pottery Barn, generated 36 percent of its sales and 65 percent of its profits in the three months that included Christmas last year. Tiffany & Co., with more than 150 stores around the world selling jewelry and other specialty items, generated 37 percent of its annual sales and 51 percent of profits in the quarter.

While industry sales growth is expected to be moderate this year, results will vary significantly from chain to chain, and many analysts expect the best results at stores that cater to upper-income shoppers. “The luxury market is where the action is,” said Niemira.

One reason is that while wages have been relatively flat, non-wage income including stock dividends has been growing. Some luxury retailers could see a windfall after Dec. 2, when Microsoft pays out an unprecedented special dividend of $32 billion.

(MSNBC is a joint venture of Microsoft and NBC.)

“It is one of those wild cards,” said Niemira. “Of that $32 billion very little will make it into the retail stream. But even if half-a-billion gets spent, which I think is reasonable, it still is an extra lift. It is a story that will underpin the season’s performance.”