Here's how worried consumers are this year: retailers have already started promoting what would have usually been their best holiday deals--and have been greeted with collective indifference. The response: Is that all you've got? "The deals aren't that amazing, and the Best Buy circular in particular was so disappointing," says Jon Vincent, founder of BlackFriday.info, an online deal site. "Shoppers expected a lot more with the economy hurting."
Oh, they'll get it, as retailers cave in to the pressure to attract sales dollars. But price alone might not get shoppers in the door, so this could be the season of extreme retailing, with stores offering even more carrots to drive sales in this dreary economic climate. As of Nov. 11, 72% of consumers had completed less than 10% of their shopping, according to the National Retail Federation's (NRF) 2008 survey by BigResearch of holiday consumer intentions and actions. "They know the longer they wait, the better off they are, so there's no reason to rush," says Marshal Cohen, chief industry analyst at the NPD Group, a market-research firm. (Find out 10 things to do with your money.)
So expect a little bit of everything. Sears has quadrupled the number of items in its sales flyer to 677 this year, from 165 last year. Power discounter Wal-Mart launched Operation Main Street, presenting a new round of markdowns every week until Christmas. Mattel will give a $50 Visa card to those who spend $100 on select Barbie toys. Sears and Radio Shack are urging eco-conscious consumers to dump their power-sucking old equipment, offering gift certificates for the trade-in value. Likewise, Staples offers $30 toward the purchase of a new camera or laptop for buyers who recycle an old one.
Layaway programs--plans with roots in the Great Depression--are back at Sears, Kmart and TJ Maxx. Merchandise stays at the store as people pay it off little by little, interest-free. No credit card required. Tired of dry-cleaning bills? Ann Taylor Loft promotes the fact that most of its clothes are now washable. And if you suffer buyer's remorse, more than half of retailers say their holiday return policies will be more lenient than usual, up from 35% who said so last year, according to NRF's return-fraud survey.
Adding to the pressure on retailers is a shorter window to shop and a suddenly thrift-minded shopper. Black Friday--when the holiday shopping season traditionally begins, the day after Thanksgiving--falls on Nov. 28, far later than usual. Compared with last year, stores now have five fewer shopping days and one less weekend between Thanksgiving and Christmas. Looming layoffs and tightening credit have crushed consumer confidence, making shoppers more discerning than ever. Before buying a gift, 71% of shoppers ask themselves, Is this a smart use of my money? according to an October survey on how America shops, conducted by WSL Strategic Retail, a New York City consultancy. Deloitte's annual holiday survey showed that almost 60% of consumers expect to reduce their spending and that people are planning on buying fewer gifts--21.5 on average, compared with 23 in 2007.
Stores have to figure out how to tap into this recalibrated value system--one based on caution rather than the branded excess of Christmas past. "The American consumer is trading downward in the most dramatic fashion ever seen," says Howard Davidowitz, chairman of Davidowitz & Associates, a retail-consulting firm. What's more, the thrift mind-set has seeped into all income levels. Saks Fifth Avenue, for instance, had a 16.6% drop in sales in October. "Saving is cool right now," says Candace Corlett, president of WSL. "Conspicuous consumption is out, and people have lost their passion to buy." (See pictures of the global financial crisis.)
That's bad news for retailers, which traditionally get up to 40% of their annual revenue from holiday shopping. Still, there are some bright spots. The Internet should outdo the sidewalk: online retail sales this holiday season are expected to grow 12% over last year, to $44 billion, predicts Forrester Research. And discount chains like TJ Maxx, Wal-Mart, Costco and BJ's Wholesale Club should see strong sales as they hammer away at prices. BJ's third-quarter merchandise comparable sales were up 7% vs. 2007's. "Our position is serving us well in this economic environment," says Laura Sen, BJ's president.
The key to success for most retailers will be managing inventory and staff levels smartly--these are the few areas where stores can make significant adjustments. Because of the steady sales decline over the year, most shops had trimmed inventory levels at least 10%, conserving cash. Many stores have gone further, lowering inventory levels as much as 18%, says Cohen. That's nearing the danger zone. "If they cut any more, they won't have enough to even come close to making their number," he says. "They have to sell enough to pay the electric bill." Likewise, retailers are ratcheting down staffing. College kids might have to look for jobs outside the retail sector to generate extra Christmas cash. Best Buy is bringing in 16,000 to 20,000 holiday hires this season, down from 26,000 in 2007. (The good news for hopeful or clueless males: Victoria's Secret and Toys "R" Us say they'll keep last year's levels to ensure top-notch service.)
Yes, there is going to be a Christmas. Americans buy gifts even in trying times. How much they'll spend remains the big question. Says Bill Martin, a co-founder of ShopperTrak, a retail-information company: "Consumers are going to want to have their Christmas this year with all the bad news they've had."