Discounters turn aggressive for holiday

3 hrs.

Martha C. White , NBC News contributor

The aggressive push by discounters to promote ?Black Friday? deals ever earlier reflects a retail industry competing aggressively for market share while trying to avoid the panic selling of a few years ago, analysts say.

Industry analysts generally expect retailers to enjoy a 4 percent increase in holiday-season sales over last year, but getting there will take aggressive pricing given the still-sluggish economy.

?I think it will be more promotional than last year,? said Morningstar equity analyst Michael Keara. ?In terms of the overall consumer, we?re still seeing stagnant wage growth. ... You see consumer confidence numbers hit new highs,? but middle- and lower-income consumers will be cautious about spending this season, he said.

Mixed results from the nation?s two biggest discount chains Thursday reflect this conflicted economic picture. ?Walmart, by far the nation?s biggest retailer,?missed revenue expectations?but managed to post profits that were were a bit penny higher per share than analysts had expected.?

Target?also came in a bit short on revenue?but beat profit expectations, even after accounting for the boost it got from selling its credit card portfolio.

?In order to drive expected holiday top-line increases, promotional activity will be as intense as ever,? retail strategist Clementine Martin Illanes said via email. ?Some retailers are opening their doors earlier than prior years on Thanksgiving eve, and others have already begun to publicize promotions.?

The heavy emphasis on Black Friday ? or Black Thursday, in some cases ? comes as the economy seems to be slowing again. On average forecasters expect the economy to grow at a sluggish 1.6 percent rate this quarter, according to a Reuters poll. That is down from an unimpressive 2 percent last quarter and a projection of 1.8 percent in last month?s poll.

The sluggish growth means profit margins will be squeezed, said Keara. Retailers are ?going to be fighting for every little crumb,? he said.

The silver lining for investors is that retailers are likely to avoid the ?panic-driven fire sales that marked the 2007-09 recession. They?ve gotten smarter about managing their inventory and cutting costs in anticipation of holiday-season price wars.

?I think that?s already baked into their guidance,? said Joseph Feldman, senior analyst at Telsey Advisory Group. ?We?d already modeled gross margin to be down a little bit for these guys on the assumption it would be promotional.?

Most analysts say the fallout from Hurricane Sandy won?t have a material effect on big-box retailers, although the prospect of ?fiscal cliff? fallout is another story.?

More than two-thirds of economists in Reuters? latest poll said fiscal cliff worries would put a drag on holiday spending.

?I think the biggest risk is if the consumer really gets concerned about what?s going on in the macro environment,? Feldman said. This, combined with a still-sluggish labor market, makes this year?s heightened competition a necessity, Keara said.

?Until you start to see wage growth, I can?t get excited about the holiday season,? he said.

Source: http://www.nbcnews.com/business/discounters-turn-aggressive-holiday-season-1C7101699

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