How robust will holiday sales be?

Competitive retail season promises bargains for consumers

November 19, 2006|By Andrea K. Walker and Hanah Cho | Andrea K. Walker and Hanah Cho,Sun reporters

Renee Hoyt is looking for one thing as she buys Christmas presents for family and friends this holiday season: deals. The 36-year-old from Essex started her Christmas shopping last week with a stop at Security Square Mall. She then headed to a nearby J.C. Penney to check out the 50 percent discounts for many items.

Shoppers like Hoyt have lucked out so far this year. Many retailers such as Wal-Mart and J.C. Penney slashed prices weeks ago to convince shoppers to buy before the traditional start of the holiday shopping season, which begins Friday. That has pushed other retailers who sell everything from toys, electronics and apparel to join the price wars to compete for consumers in a buying season that analysts forecast will produce tepid results at best.

The holiday season, which includes the full months of November and December, is important because it accounts for 20 percent to 40 percent of annual retail sales. Analysts say higher energy prices and a slowing real estate market are likely to dampen consumer spending this year. But they look for bright spots at department stores and luxury gift sellers.

"There is a lot at stake," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm in New York. "It'll be a very promotional holiday. Customers are very price-conscious."

The National Retail Federation predicts $457.4 billion in holiday spending this year, a 5 percent increase over 2005. That would be a solid showing but not as good as last year when sales rose 6.1 percent to $435.6 billion. Holiday shoppers plan to spend on average $791.10 this season, up from $738.11 last year, according to the trade group. Consumers will spend an additional $99.22 on themselves.

"The stores are so competitive now," said Hoyt, who hopes to spend less this season by taking advantage of deals. "You really have to keep your eyes open and you can get some really good savings."

Department stores such as Macy's and Boscov's are trying to solidify their place in markets like the Baltimore area after a year of consolidation and expansion. Federated Department Stores Inc., Macy's operator, bought out the parent of Hecht's earlier this year, eliminating some stores. The retail space it yielded allowed Reading, Pa.-based Boscov's to expand here.

Internet shopping is expected to grow by double digits again. And more companies will offer free shipping this year to make up for poor results last year in delivering gifts on time.

And discount stores like Wal-Mart - the world's largest retailer, which sets pricing trends throughout the industry - has vowed the most aggressive pricing strategy for the holiday season. Last week, Wal-Mart announced the fourth set of price cuts in a month.

"What's happening is that Wal-Mart is setting the tone," Davidowitz said. "That has caused a ripple because that means Target has to react, Best Buy has to react, Circuit City has to react. Everyone has to react in one way or another."

andrea.walker@baltsun.com and hanah.cho@baltsun.com

Here is a look at some key areas this holiday season:

Electronics

Consumer electronics continue to be the "must-have" gifts for the holidays. And this is the perfect time for consumers to snatch up MP3 players, digital cameras and big-screen televisions, analysts say, because prices keep falling on big-ticket items.

For instance, Wal-Mart cut the price on a 42-inch, Panasonic HD plasma TV from $1,794 to $1,294, along with prices of nearly 100 other items. Target said it would match Wal-Mart's prices in markets where they compete.

"It's definitely good news for consumers," said Shawn Dubravac, an economist with the Consumer Electronics Association. "[Retailers] are competing fiercely to bring down the prices for consumers."

Spending for electronic items is expected to account for 24 percent of overall gift expenses, an increase of 17 percent from the previous year, according to the association. Sales are expected to increase to $21 billion in 2006, compared with $17 billion a year ago, the electronics trade group said.

Digital music players and digital cameras are this year's must-have high-tech gifts among adults, while teenagers want digital music players and game consoles. The latest buzz surrounds the Sony Playstation 3 and Nintendo Wii consoles, which were released last week and today respectively, to much anticipation.

Discounters

Discount stores like Wal-Mart face a competitive shopping season and that should mean better deals for consumers.

Analysts said high-energy prices and a drop in disposable income are hurting low-income families, the core shoppers at discount stores. Some also say Wal-Mart expanded too quickly and focused on fashion to attract a higher-income shopper, which did not yield strong results. The result, they say, is that the retailer cut prices early this year.

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