Originally created 11/29/03

Retailers aim to limit discounting this holiday season



NEW YORK -- Instead of using deep discounts to lure shoppers this holiday season, Domain Home Fashions is sending design consultants to their homes for free.

Bloomingdale's also plans to discount less, counting on upscale holiday decor and splashy versions of its private label merchandise to motivate shoppers. And Bergdorf Goodman is focusing on designer names that can't be found elsewhere to draw well-heeled shoppers.

As holiday shopping starts in earnest Friday amid an improving economy, many of the nation's retailers - particularly department stores and apparel merchants - plan to be stingier with markdowns than in past holiday seasons. They're counting on consumers to be so pleased with new services and exclusive merchandise that they'll be willing to pay full price.

Many retailers are hoping to wean shoppers away from the heavy discounts of the past, but some analysts question whether the strategy will work. Consumers have gotten used to putting off their shopping while they wait for prices to fall, and they may well force retailers to take heavy markdowns as the season progresses.

"This is definitely a high stakes Christmas," said John Morris, an analyst at Harris Nesbitt Gerard, estimating there were 10 percent fewer markdowns going into the start of the season than there were a year ago at the 25 apparel chains he follows. That's the first decline since 1998.

"Retailers are trying to lure the consumer with fewer discounts, but how strong will consumers be? We're moving away from a period of uncertainty, and consumers are feeling a little bit better, but they are still tentative," he added.

Shoppers interviewed this week were indeed cautious.

"It's good if you can find sales," said Ruthann Pinkerton, who was at the Circle Centre Mall with her husband in Indianapolis. "That always helps out on a limited income."

Pinkerton, retired and on a fixed income, said she'll be looking for deep discounts.

Margee Kenyon, of Billings, Mont., said she will spend much more this season because she plans to buy household items for her son. But she's also focusing on discounts.

"I've done more pricing of things. What I have bought so far has been on sale," she said while shopping at the Rimrock Mall.

Clearly, retailers are more optimistic than in the past few years. In 2002, uncertainty over the prospect of war in Iraq and a spate of corporate layoffs weighed heavily on consumers. This year, the economy is on the rebound, with employment improving. Consumer confidence is also improving.

Still, after a strong summer, retail sales have been uneven the past few weeks, hurt in part by warm weather that has made winter apparel less appealing, according to Michael Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd.

In fact, stores worried about the sales pace are entering the season with inventories that average 7 percent below last year's levels, according to Marshal Cohen, senior industry analyst at NPD Inc., a market research firm in Port Washington, N.Y.

Many problems still plague the industry. Deflation, or a drop in prices, has been an issue for some retailers, such as toy and electronics merchants. And while the labor market is improving, the unemployment rate is still at 6 percent.

Meanwhile, no must-have item have emerged, although in toys, Fisher-Price's Hokey Pokey Elmo, Mighty Beanz from Spin Master, and MGA Entertainment's Bratz dolls are some of the best sellers.

Niemira forecasts a sales gain of 4.5 percent for the November-December period, the best performance since 1999, when the tally rose 5.4 percent. He based the estimate on sales from stores open at least a year, considered the best indicator of a retailer's health.

Last holiday season's results were unchanged from 2001.

The Washington-based National Retail Federation projects total holiday sales to rise 5.7 percent to $217.4 billion.

The luxury business is expected to be a big winner this season, and analysts believe upscale merchants will have the easiest time persuading customers to pay full price. Bergdorf Goodman said its sales have been strong although the company is discounting less. Bergdorf plans one sales event during the season, eliminating two others, and hopes to delay markdowns until after Christmas.

"The customer's appetite is back," said Robert Burke, vice president of fashion.

At Domain, the upscale furniture chain, founder and CEO Judy George said the free design consults, which started in October, have generated average furniture purchases of $1,800 per visit.

"Instead of discounting, what we are really promoting is making your home more beautiful," she said.

On the Net:

www.bergdorfgoodman.com

www.bloomingdales.com

www.domain-home.com

www.nrf.com