Holiday on ice is in store

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Few hot products. Low consumer confidence. Unemployment. Terrorist attacks. Many retailers will deal with this season's grim tidings by trimming ad budgets, not just the holiday tree.

"We know that advertising does drive customers" to stores, especially for discounts, said Richard Baum, senior retail analyst at Credit Suisse First Boston. But retailers are willing to "give up top-line sales to protect the bottom line," he said, adding, "If there's a trade-off between profits and sales, Wall Street prefers profits."

Retailers such as Talbot's and the Gap have indicated they will reduce ad spending as a percentage of sales or hold the line, Mr. Baum said. Now in the same boat as shoppers trying to stretch holiday budgets, retailers hope to capitalize on low media costs.

Holiday marketing messages will begin with a heavy flurry of price promotions. Already some retailers have taken a cue from auto manufacturers and will offer zero-percent financing on large purchases.

Beyond pricing, few retailers appear to have developed standout marketing strategies for the season. In fact, most are going ahead with few modifications on plans developed last spring, well before Sept. 11.

"There's no silver bullet in anybody's portfolio, or plan" to ease this season's holiday woes, said David Selby, exec VP-marketing at Sears, Roebuck & Co. Mr. Selby plans to run more than three dozen individual spots in the new "Sears: Where else?" campaign in an attempt to win the important battle for Saturday shoppers. Others are dusting off marketing playbooks from troubled Christmases past, such as the 1980s department-store plush-bear giveaways with purchases. Toys `R' Us is offering 26-inch Mickey or Minnie Mouse dolls with purchases of $100 or more.

In a season when discounters such as Wal-Mart, Kohl's and Target are expected to thrive, observers expect a significant disruption in shopping patterns. Kurt Barnard, president of Barnard's Retail Trend Report, expects shoppers to shun megamalls and instead shop at local strips where they can dip in and out of stores quickly. That will further benefit discount outlets at the expense of specialty retailers such as the Gap. Overall holiday spending by consumers is expected to be flat or below last year's holiday levels, with the luxury sector hit particularly hard.

The Gap, which this fall for one of the first times in memory plastered sales signs on the windows of its Gap stores and discount Old Navy chain, breaks ad campaigns Nov. 18 touting sweaters. The Gap will use the tag line, "Give Your Gift." Modernista, Boston, has the Gap assignment.

Some product lines will be stronger than others. Digital devices such as cameras and DVDs are among the season's top draws. "There are elements of the consumer electronics, home entertainment and computer businesses that look like they're in better shape" than other sectors, said Ira Matathia, global director-business development at Havas Advertising's Euro RSCG Worldwide.Technology also will sprinkle holiday cheer on the toy category beyond new video console and game sales (see story, P. 4). "The entire [toy] industry is enhanced technologically," said Warren Kornblum, exec VP-worldwide marketing, Toys `R' Us.

Mr. Baum expects retailers to stick with promotional tactics into the first quarter of next year. But at least one consultant said the focus on price misses an opportunity. Patricia Kidd, lead consultant of the advertising and communications practice at Wirthin Worldwide, a research and consulting company, said consumers have burrowed into their homes because of external threats. To coax them out, she said, "Retailers need to create an environment where consumers come in thinking they're at a wonderful event, rather than going into a store to save money on presents."

Although the stakes are high in an industry beset by bankruptcies and a changing cast of leaders, Mr. Barnard believes most retailers will do more than survive. This holiday season, he said, "is going to be an opportunity for them to find their way to a new world."

Contributing: Tobi Elkin

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