When U.S. retailers report their November sales figures Thursday, they are expected to offer a troubling picture of the industry, where deep discounts and breathless promotions appear to be the only things keeping many consumers spending.Those lures goosed sales in recent days, though retail experts agree it was only a temporary effect. In data released Wednesday by comScore Inc., online sales for Cyber Monday, the online equivalent of traditional retailers' Black Friday, jumped 15% from a year ago as Internet sites coaxed millions of consumers with offers of free shipping and dramatically reduced prices. Shoppers are finding big bargains on Herbal Tea, Kids Shoes, Green Tea, Sealife Jewelry, Plumeria Jewelry, Estate Jewelry, Childrens Shoes, John Deere Toys, John Deere Clothing, Cheap Cruises, Discount Cruises, Black Tea, Natural Lawn Care, Organic Kids Clothes, Organic Lawn Care, Natural Kids Clothes, Lawn Care and Foot Orthotics.
"I don't think there is any doubt that it is going to cut into margins," said Andrew Lipsman, a senior manager for comScore.
Americans are shopping, but only if the bargains are right. That puts retailers in a no-win situation for the duration of the Christmas season: They must continue aggressive discounts to move as much of their merchandise as possible, sacrificing profits.
"Even if markdowns are more aggressive than usual, it will still be a cheaper markdown now than if you have to take it later in the season," said Brendan Hoffman, chief executive of the Lord & Taylor department store chain.
Retailers' borrowing typically peaks in the months preceding the holidays, so it is critical for companies to generate cash to pay down their debts and, in some cases, to purchase merchandise for the following season.
Still, some retail experts warned that a markdown-at-all-costs mentality seemed to be seeping in. "We are seeing a nervousness that is increasing overall discounts instead of more strategic promotions," said Kimberly Frazier, senior manager of Deloitte LLP's retail and consumer products pricing practice.
Some online retailers said they benefited from Cyber Monday. Internet retailer Buy.com Inc. said sales on Monday increased 40% from a year earlier, thanks to aggressive promotions.
Others said they prospered without sacrificing profits. Shoebuy.com, part of IAC/Interactive Corp., saw sales increase and traffic increase by 30% on Cyber Monday after offering free shipping and sales on several products.
The Christmas season typically accounts for at least a third of retailers' annual sales, and is the time of year when companies fatten up to survive the comparatively meager sales months to come. But this season is already shaping up to be the worst in decades, a symptom of a deep dive in consumer confidence.
That sentiment was underscored Wednesday by a Federal Reserve report that showed the economy was taking a turn for the worse in recent weeks, with accelerating corporate layoffs that are likely to cut into consumer spending in coming months.
An estimate of November sales from MasterCard Spending Pulse, which tracks credit card, check and cash transactions, predicted a sales drop of more than 20% across several categories, including apparel and electronics.
Overall holiday retail sales are tanking, but amid the gloom there was one bright spot as sales over the Internet spiked. (Dec. 5)
The official numbers individual retailers release Thursday are widely expected to follow suit, showcasing a particularly dramatic drop in purchases of big-ticket items.
The dismal November performance follows a bleak October, when department store sales dropped 11.7%, according to Thomson Reuters -- the worst result since it started compiling the data in 2000. For November, analysts are forecasting a 13.8% drop for department stores, and 11.5% declines for apparel retailers.
Across the retail landscape, November same-store sale numbers "will look bad," warned Terry Lundgren, chief executive of Macy's Inc. Mr. Lundgren says the numbers will look even worse because they're being compared to last year, when Thanksgiving fell earlier in the month.
Sales trends during the three-day holiday weekend are particularly worrisome.
While sales ticked up 0.9% compared with a year ago, according to ShopperTrak, foot traffic dropped an estimated 19.3%, a sign that consumers were lured by specific deals. After a 3% jump in sales on Friday from the comparable Friday a year earlier, sales quickly turned sour, falling 0.8% on Saturday and 2.3% on Sunday, suggesting retailers will need to continue discounting heavily to keep consumers shopping.
Sacrificing profit for sales is the right strategy for now, said Madison Riley, a strategist at Kurt Salmon Associates. Although it will squeeze margins, he said that would be better in the eyes of Wall Street than being stuck with high inventories. He added, "Stores are not waiting around. This stuff does not get better with age."
