Analysis: U.S. retailers brace for margin hit from holiday discounts

Tue Nov 19, 2013 7:06pm EST
 
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By Lisa Baertlein and Phil Wahba

(Reuters) - Shoppers like stay-at-home mom Susan Sterling are American retailers' worst nightmare this holiday season.

The 52-year-old from Mountain Home, Idaho expects to spend only about $200 on holiday gifts, $100 less than last year, and plans to buy only what's on sale or clearance.

She is not the only one cutting back. According to a new Reuters-Ipsos poll, most Americans plan to spend less than they did during the 2012 holiday shopping season. And by all indications, most are demanding rock-bottom prices.

Retailers from Macy's Inc (M.N: Quote) to Wal-Mart Stores Inc (WMT.N: Quote) to Best Buy Co Inc (BBY.N: Quote) are responding with massive discounts even at the risk of profit margin declines. When the smoke clears on the unprecedented price-cutting blitz, consumers should emerge as the clear winners.

"It's going to be a promotional frenzy this year," said David Bassuk, a managing director at advisory firm AlixPartners and co-leader of its retail practice, which expects overall holiday sales to rise 4.1 percent to 4.9 percent - higher than the National Retail Federation's forecast for a 3.9 percent rise and last year's 3.5 percent increase.

Underlining Bassuk's point, Wal-Mart said on Tuesday it would jump the gun on special prices offered by its competitors on Black Friday, the day after Thanksgiving and the traditional start of holiday shopping period.

Wal-Mart will match Black Friday offers on toys and electronics from Target Corp (TGT.N: Quote), Toys R Us and Best Buy starting as early as a week before the big shopping day, which falls on November 29 this year.

The world's largest retailer will sell television sets at the lowest prices "in several years," said Laura Phillips, senior vice president for entertainment at Walmart U.S. It's the first year the retailer is including electronics in its pre-Black Friday sales.   Continued...

 
Shoppers walk past a shop while carrying shopping bags in New York, December 26, 2012. REUTERS/Eduardo Munoz