Holiday discounts promise to be merry

NEW YORK - The Christmas shopping season doesn't kick off for six weeks, but retailers already are signaling they are prepared to discount aggressively to entice shoppers still skittish about spending.

Gift buyers are likely to scrutinize every purchase, from $20 toys to $1,000 designer jackets, and limit how many stores they visit.

That could put stores in a jam this year because for many merchants, deadlines for holiday orders were in spring, when the economic recovery looked more solid. Since then, several indicators and consumers' collective mood have darkened. For example, the government reported Friday that the nation's employers cut 95,000 jobs in September.

The shift in outlook could set retailers up for a flashback to 2008, when they were stung by shoppers who drastically cut spending after the financial meltdown. Stores had to mark down items as much as 90 percent to clear them out.

That left an imprint on 2009, when retailers managed to stay profitable amid sluggish sales by stocking fewer items. By better matching demand, they didn't need clearance discounts.

Most forecasters don't expect shoppers to spend much more this year than they did during last year's tepid season. Sales rose only 0.4 percent over 2008, after they had slumped 3.9 percent, according to the National Retail Federation's calculations.

Many retailers say they are ready to tweak orders where they still can or sharpen discounts to adjust to erratic spending.

A lot is riding on holiday sales because they account for up to 40 percent of annual revenue for many retailers. For toy merchants, it's up to 50 percent.

Mike Ullman, J.C. Penney Co. chairman and chief executive, told investors last month that the department store chain was prepared to discount this Christmas season to bring shoppers in.

Bill Simon, chief executive and president of Wal-Mart's U.S. business, told investors at another conference a few weeks ago: "We expect a very, very competitive and aggressive Christmas and holiday selling season."

Stores anticipate that many shoppers will stick to their Christmas lists and hold out until the last minute for the best deal.

"There is a sharp cleavage of those with full-time jobs, who are returning to spending on discretionary items, though cautiously, and the others without full-time jobs, who are spending solely on need," said Craig Johnson, president of retail consultancy Customer Growth Partners.

John Long, retail strategist at Kurt Salmon Associates, says shoppers will be looking for gifts that "exude practicality and smarts."

While luxury shoppers are holding up much better, Neiman Marcus and several other upscale stores have reported erratic sales amid wild swings in the stock market.

The National Retail Federation expects a 2.3 percent increase in holiday sales from a year ago to $447.1 billion. That would fall short of the 10-year historic average of 2.5 percent, according to NRF calculations.

"It's not optimistic, it's not pessimistic, but very realistic," said Matthew Shay, NRF president.