Deep-sixing discounts

NEW YORK – Instead of using deep discounts to lure shoppers this holiday season, Domain Home Fashions is sending design consultants to their homes for free.

Most other retailers also plan to discount less, counting on holiday decor and the right merchandise to motivate shoppers.

As holiday shopping starts in earnest Friday amid an improving economy, many of the nation’s retailers – particularly department stores and apparel merchants – plan to be stingier with markdowns than in past seasons. They’re counting on consumers being so pleased with new services and exclusive merchandise that they will pay the full price.

Many retailers are hoping to wean shoppers away from the heavy discounts of the past, but some analysts question whether the strategy will work. Consumers have gotten used to putting off their shopping while they wait for prices to fall, and they may well force retailers to take heavy markdowns as the season progresses.

“This is definitely a high-stakes Christmas,” said John Morris, an analyst at Harris Nesbitt Gerard, estimating that there are 10 percent fewer markdowns going into the start of the season than there were a year ago at the 25 apparel chains he follows. That’s the first decline since 1998.

“Retailers are trying to lure the consumer with fewer discounts, but how strong will consumers be? We’re moving away from a period of uncertainty, and consumers are feeling a little bit better, but they are still tentative,” he added.

Clearly, retailers are more optimistic than in the past few years. In 2002, uncertainty over the prospect of war in Iraq and a spate of corporate layoffs weighed heavily on consumers. This year, the economy is on the rebound, with employment improving. Consumer confidence is also improving.

Still, after a strong summer, retail sales have been uneven the past few weeks, hurt in part by warm weather in parts of the country that has made winter apparel less appealing, according to Michael Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd.

In fact, stores worried about the sales pace are entering the season with inventories that average 7 percent below last year’s levels, according to Marshal Cohen, senior industry analyst at NPD Inc., a market research firm in Port Washington, N.Y.

Many problems still plague the industry. Deflation, or a drop in prices, has been an issue for some retailers, such as toy and electronics merchants. And while the labor market is improving, the unemployment rate is still at 6 percent.

Meanwhile, no must-have items have emerged, although in toys, Fisher-Price’s Hokey Pokey Elmo, Spin Master’s Mighty Beanz and MGA Entertainment’s Bratz dolls are expected to be some of the best sellers.

The luxury business could be a big winner this season, and analysts believe upscale merchants will have the easiest time persuading customers to pay full price. Bergdorf Goodman said its sales have been strong even though the company is discounting less. Bergdorf plans one sales event during the season, eliminating two others, and hopes to delay markdowns until after Christmas.

“The customer’s appetite is back,” said Robert Burke, vice president of fashion.