NEW YORK – Get ready for the midnight sales specials, 60 percent-off discounts on holiday toys and racks of marked-down merchandise.
The holiday season is always about price wars. But retailers are bracing for what could be the most brutal holiday season in recent years after Wal-Mart Stores Inc. announced Thursday a disappointing October sales report and a bleaker outlook for November.
Along with its bad news, the world’s largest retailer had a warning: It will use price as a weapon as it competes for consumer dollars this holiday season.
Shoppers will be the beneficiaries, enjoying bigger discounts on toys and electronics such as flat-screen TVs even earlier than usual in the season. But heavy price cutting is problematic for retailers, whose profits shrink along with prices. The most vulnerable this season are likely to be Wal-Mart’s discount rivals, including Target Corp., toy sellers such as Toys “R” Us Inc., and electronic retail chains such as Best Buy Co. Inc., according to Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass.
In apparel retailing, moderate-price players like Kohl’s Corp. and J.C. Penney Co. could also feel some pain.
Wal-Mart blamed its lackluster October sales in part on a failed women’s fashion strategy that was too trendy for its customers, and on disruptions from a store remodeling program. But the company is wasting no time in battling its rivals – next week, Wal-Mart hopes to lure shoppers with $398 Compaq Presario laptop computers.
“The news from Wal-Mart is definitely discouraging,” said Perkins. “They are going to be very price aggressive. And it is going to have an effect on everyone. It is going to force other retailers to cut their prices, which in turn will squeeze their profit margins.”
The latest development from Wal-Mart came as the nation’s retailers reported mixed October sales, the result of consumers taking a breather after going on a buying spree in September.
BJ’s Wholesale Club Inc., Pier 1 Imports Inc. and Gap Inc. were among the other retailers with disappointing sales. Meanwhile, department stores scored again, with robust business at such companies as Federated Department Stores, J.C. Penney Co. Inc. and Saks Inc.
The International Council of Shopping Centers-UBS sales tally rose 3 percent in October, less than the 4 percent gain in September. The tally is based on same-store sales, or sales at stores opened at least a year. Same-store sales are considered the best indicator of a retailer’s health.
The outlook for the holiday shopping had brightened for retailers since August amid falling gasoline prices and subsiding interest rates. In fact, earlier this fall, the worry was that stores might not have enough inventory amid better-than-expected consumer spending. That meant that stores could be stingy with discounts.
But that’s now changed. Marshal Cohen, chief analyst at NPD Group Inc., a market research company in Port Washington, N.Y., says this holiday season could be as promotional as three years ago, when Wal-Mart spoiled the season by sharply discounting hot holiday toys below cost.
This year, “the consumer is going to be the beneficiary of all this nervous energy,” Cohen said. He believes more stores will embrace midnight specials, a growing trend, on the Friday after Thanksgiving.
Still, analysts are sticking to their holiday growth forecasts, which call for robust gains, though not as strong as a year ago.
The National Retail Federation is projecting a 5 percent gain in total holiday retail sales for the November-December period, less than the 6.1 percent a year ago.
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