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Holiday Shopping Season Offers Retailers Little Cheer

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The Associated Press

Published: December 24, 2008

NEW YORK - Retailers are suffering through one of the most difficult holiday seasons in years, slashing prices by 70 percent and 80 percent and offering other deals in a desperate effort to ring up more sales.

But consumers aren't exactly bailing them out: Worried about job security and the impact of unsettled markets on their retirement funds, potential shoppers have been cautious about spending.

Does this spell doom for U.S. retailers?

Here are some questions and answers about the importance of the holiday season to the retail sector.

How important are the holidays to retailers in terms of sales?

The holiday season can account for up to 30 percent of annual sales at many stores. For toy sellers, it's more like 50 percent.

Calling the day after Thanksgiving "Black Friday" emphasizes the importance of the season: The traditional start of the holiday shopping period, it historically was the day when the surge of shoppers helped stores break into profitability - as in, into "the black" - for the full year.

Although the nickname has stuck, it's been quite some time since many retailers could count on Black Friday to vault them into profitability for the year.

How bad is the holiday season looking this year?

The National Retail Federation trade group expects overall holiday spending will total about $470.4 billion, a 2.2 percent rise from a year ago. That qualifies as a pretty bad season - it would be the slowest growth in holiday sales since 2002, falling well short of last year's 3 percent growth and the 10-year average of 4.4 percent.

And Michael P. Niemira, chief economist at the International Council of Shopping Centers, expects sales in stores open at least one year - a key indicator of a retailer's health - will fall as much as 1 percent for the November and December period. That would be the worst performance for the holidays since at least 1969, when the group's index began.

What can retailers do to make up for the dismal holiday season?

Merchants are focusing on paring back their costs and keeping close control of their inventories so they end up with fewer items that they have to mark down to get sold. Many are cutting jobs, curtailing or delaying the opening of new stores, or taking other steps to offset slumping sales.

Electronics retailer Best Buy Co. said last week that it will slash capital expenditures by half in 2009 and will offer voluntary severance packages to virtually all its 4,000 corporate employees. Children's clothing chain Gymboree Corp. is cutting salaries by up to 10 percent for senior management and corporate staff to prepare for what it believes will be a deepening spending slump.

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