Retailers Brace for Season's Beatings

Amid Grim Sales Forecasts, Target, Costco, Others Hasten Christmas Push

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NEW YORK (AdAge.com) -- With an escalating consumer-credit crisis, five fewer shopping days, looming retail bankruptcies and the lowest projected sales growth in years, it's going to be a cutthroat Christmas.

It's also going to come earlier than ever. While last year's calendar made for the longest holiday-selling season possible, this year the opposite is true because Thanksgiving comes later, so stores are striking fast -- Macy's, Target and Costco already have set up holiday displays -- and hard, with discounting and door-busting expected to run rampant.


Holiday retail forecast
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Holiday retail-sales increases since 1998.
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"This year we'll certainly see promotions before Thanksgiving, and you'll see more-aggressive promotions earlier in the cycle than we have in past years," said Chris Donnelly, partner at Accenture's retail practice. "Consumers right now are responding heavily to retailers that have a focus on a value message. ... Those that maybe [don't have a value message], they'll have to get there. One way to get there is with some aggressive promotional activity."

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Mike Gatti, executive director of the Retail Advertising & Marketing Association also expects more retailers to kick off the holiday season early this year, for example, by promoting day-after-Thanksgiving sales well before Turkey Day. "[Retailers] have to make sure the consumer gets into the mind-set," he said. "I would think [retailers] are going to try to make a little more noise this year."

It will be important to grab consumers' attention early in the season, said JCPenney CEO Mike Ullman, but he's choosing to look for the silver lining. "It's crunched by five days this year, but in some ways, that might make it better in the sense that the intensity after Thanksgiving will be more; [there will] be more urgency," he said during a recent conference call. "A year ago, over the longest calendar, obviously [consumers] didn't have to be focused too much on holiday right away after Thanksgiving."

Grey Christmas
Months of slow sales have retailers on edge about the holiday, and several industry forecasts released this month are doing little to allay those fears. TNS Retail Forward expects sales to grow by just 1.5% -- the slowest growth since 1991, when the economy was mired in a recession. The National Retail Federation, meanwhile, said sales will grow 2.2%, which would represent the slowest season since 2002. NRF has been tracking holiday sales since the mid-1990s, TNS since the 1970s.

"Yes, it's rising, but the rate of acceleration is weakening," said Scott Krugman, NRF spokesman, of this year's forecasted sales growth. "When you're used to an average increase of 4.4%, and you're only left with half of that, that's a cause for concern. You're going to very rarely, if ever, see negative growth, because of [things like] population growth."

Both groups stand by their projections, although they were released in the midst of the financial crisis on Wall Street. "There's some time for shoppers to digest this," said Frank Badillo, senior economist at TNS Retail Forward, of the financial upheaval. "If there's no additional bad news, there's an opportunity for [shoppers] to feel like they're in good shape closer to the holiday season."

Still, retailers aren't taking any chances. Kohl's CEO Kevin Mansell said the retailer will emphasize value in all of its advertising, adding that its numerous private and exclusive labels will allow it to be "aggressive" in promotional efforts compared with the competition. "We intend to use that throughout the fall and holiday season to our advantage," he said during a call with analysts.
Mike Gatti, executive director of the Retail Advertising & Marketing Association
Mike Gatti, executive director of the Retail Advertising & Marketing Association

Retailers in all categories are likely to push proprietary labels, which often carry higher margins, as they look for ways to increase profits and differentiate themselves. A profitable holiday will be key for many, especially those already on shaky financial ground. A slew of retail bankruptcies earlier this year and increasingly tight credit markets could lead to a second wave of bankruptcy filings for those that aren't successful. That means advertising spending is being carefully scrutinized across the board.

Efficiency
Mr. Gatti said recent conversations with retailers revealed that only a few plan to increase advertising budgets this season, while most are curtailing their spending. "It's really a mixed bag," he said. "The majority [of retailers] are watching what's going on and probably not increasing [their budgets] but looking at how they're going to [advertise] more efficiently."

Victoria's Secret is planning to keep its marketing spending flat for the holidays, said Chief Marketing Officer Jill Beraud. "In general this year, we're focused on driving profitability, even if the top-line sales are about the same as last year," she said. "We're controlling inventories and limiting promotions."

Ms. Beraud said the retailer plans to eliminate deep-discount pricing closer to Christmas, although she said there are always contingencies.

"It's almost an arms race ... and you're not going to want to be the person that's not well-positioned," said Accenture's Mr. Donnelly. "Retailers are going to manage their inventory and they're going to manage their sales hours, but I don't think they're going to cut from the door-buster-type sale. That's become, frankly, the standard in the industry over the past few years."
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