Retailers’ financial health hinges on holiday season
NEW YORK – Retailers awaiting the arrival of Black Friday are on edge. How well they do during the biggest shopping season of the year will have lasting consequences not just for them but for the still-fragile economic recovery.
This weekend, many stores will for the first time use midnight openings along with the usual bevy of deals as they try to lure consumers, whose appetite for good buys has been increasing since the Great Recession.
Economists and business executives will be watching closely.
“A bad holiday season would raise recession fears again, whereas a strong one would start to dispel those fears,” said Scott Hoyt, senior director of consumer economics for Moody’s Analytics.
That would give companies more impetus to step up hiring, he added.
As usual, success will depend largely on consumer spending, which accounts for about 70 percent of U.S. economic activity. Consumer spending can impact stores’ expansion plans and inventory decisions into the new year.
And that trickles through the rest of the economy, from suppliers to jobs.
The November- December period accounts for 25-40 percent of annual sales and profits. For 2011, that’s almost half a trillion dollars in revenue. The retail industry accounts for nearly a quarter of U.S. jobs.
As the critical sales time begins, economists and merchants are wondering whether shoppers will stick to their lists or pick up some extras for themselves not only on Black Friday but over the rest of the season.
Or will shoppers do what they’ve been doing for several years now: jump on the deals and retreat until the season’s final days when they think the bargains will be better? And how much discounting will be necessary to draw them in?
Just as in the past few years, merchants have tried discounts on holiday merchandise as early as October.
And those 4 a.m. openings on Black Friday are now outdated. The new trend is midnight openings, with stores including Target, Best Buy and Kohl’s embracing them as they try to be the first to pull in shoppers.
Given this year’s challenging environment, online jewelry site Blue Nile is making a bigger push in marketing, launching its first online sale on Black Friday to snag more female customers.
“It’s going to be competitive. I want to get our brand out there in the mix,” said CEO Vijay Talwar, who estimates that 30-35 percent of annual sales come in November and December.
Earlier openings and a dramatic increase in early morning specials have helped make the day after Thanksgiving the biggest day of the year for the past six years in a row. It’s predicted to keep that crown again this year, according to ShopperTrak, a research firm.
Just because stores have a decent start doesn’t mean the overall holiday period will be good. Merchants had a good Black Friday in 2008, as shoppers showed up for the enticing deals, but the season was a bust.
The impact of that period still lingers, from shrunken orders to the demise of some suppliers, experts say.
That was when spending plunged so much that many retailers were caught with too much product in the pipeline. As a result, they slashed prices up to 80 percent to draw shoppers and raise cash.
Even Saks Fifth Avenue had a fire sale of designer clothes. Others sold jewelry and clothing to liquidators for pennies on the dollar. Some, such as Circuit City, went out of business. And the woes still linger.
Retail hiring for the season hasn’t rebounded to its 2005 prerecession peak of 642,000 workers, according to the National Retail Federation, the nation’s largest trade group. About 480,000 to 500,000 workers are expected to be hired this season, about even with the 496,000 workers hired in 2010. However, the 2011 forecast is still well above the recession low of 239,000 in 2008, according to the trade group.
The National Retail Federation expects total holiday sales to be up 2.8 percent to $465.6 billion, less than the 5.2 percent increase a year ago but slightly more than the 2.6 percent average increase over the past decade.