Holiday Shoppers May See Bigger Discounts Soon

Friday, 14 Dec 2012 03:21 PM

 

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If shoppers don't show up in stores soon, more 70 percent off sale signs will.

After a promising start to the holiday shopping season over the four-day Thanksgiving weekend, sales have slowed as worries about weak U.S. job growth and other concerns have caused Americans to spend less.

That puts pressure on J.C. Penney, Macy's and other stores, which had been offering fewer discounts this season than they did last year, to step up promotions to lure shoppers like Ron Antonette from Long Beach, Calif.

Antonette so far has spent about $1,000 on Legos, a Wii U game console and Apple's iPad Mini tablet computer for his two young children. Even though that's just half of what he planned to spend for the season, Antonette has stopped shopping over fears that Congress and the White House won't reach a budget deal by January. A stalemate would trigger tax increases and spending cuts known as the "fiscal cliff."

"I basically stopped moving forward in buying," said Antonette, 44, who runs a small public relations business and worries that he might not be able to take mortgage deductions on his house next year. "I feel like we're in financial limbo."

Antonette isn't the only shopper who feels that way. Mike Duke, CEO of Wal-Mart, the world's largest retailer, said that in a poll last month of the chain's low-to-middle income shoppers, an overwhelming majority was aware of the threat of higher taxes. And some said it would lead them to cut back their holiday buying, he said.

Overall, holiday sales are up 2.2 percent to $659 billion from Nov. 1 through last Saturday, according to an analysis of sales data done for The Associated Press by ShopperTrak, a Chicago-based firm that tracks spending at 40,000 stores across the country. That's slightly below the 2.7 percent increase over the Thanksgiving weekend when shoppers spent $22 billion.

The modest increase means sales for rest of the season will be crucial for stores, which get as much as 40 percent of their annual sales in November and December. With only about a week and a half left until Christmas, stores have a ways to go in order to reach ShopperTrak's forecast of a 3.3 percent rise in sales during the two-month stretch compared with the same period last year.

It's like the ghost of Christmas past has returned for stores. In order to salvage the season, they may be forced to offer the kind of heavy discounts that helped boost sales last year, but that also ate away at their profits. That's something stores have tried to resist all season: Promotions are down 5 percent so far this season compared with last year, according to BMO Capital, which tracks promotions at about two-thirds of mall stores.

To be sure, there still are plenty of 30, 40 and 50 percent off sale signs in store windows. But stores also have been doing more creative things with pricing to get shoppers to think they're getting a better deal than they really are. Think: Offering jeans for $9 instead of $9.99, hoping round numbers will appeal more to shoppers, or selling two shirts for $20 instead of giving shoppers 20 percent off.

"The retailing nation is trying to get off the discounting habit," said Paco Underhill, founder of Envirosell, which studies consumer behavior. "It's just like heroin — the more you do it the more you need to do it."

The fact that stores are struggling to find the right balance between pricing and profits during the holiday season is no surprise. They've been doing that since the dawn of department stores in the 1800s. Perhaps the biggest change occurred in 1975, when the Consumer Goods Pricing Act repealed state fair trade laws, allowing stores to sell items at whatever price they want instead of what manufacturers dictate.

Prices like "$19.99" instead of "$20" sprang up because as Baba Shiv, a marketing professor at Stanford University who focuses on neuroeconomics, puts it: "When you see something for $9.99, the brain categorizes that as being $9 rather than $10," he said. "Those things are still effective."

But at a time when shoppers are more price sensitive, some stores have gotten rid of the ubiquitous "99 cents" in prices in favor of flat prices. In fact, Kmart played up flat prices in its advertising and in-store deals on Black Friday with signs that read: "Experience our $5, $10, $20 Freak Out Pricing."

"The effort was around being able to communicate clearly to our customer in gift denominations they commonly think within," said Tom Aiello, Kmart's spokesman. "Nothing against the ".99."

Last weekend, tables at Forever 21 in New York's Times Square had clothes with prices that ended with "50 cents" -- for example, "$10.50 and up" or "$17.50 and up." Steve Martin, a 27-year-old resident of Scranton, Pa. who was shopping there, said people aren't fooled by fractional prices.

"I think most people are rounder-uppers," said Martin, who's looking for a job.

But if the price is right, shoppers will scoop up items. Twenty-somethings Malia and Kyra Bennett were out at Lloyd Center Mall in Portland, Ore., recently when they spotted workout shirts at H&M for $5 that they had to buy. "We didn't come to buy those, but they are only $5," Bennett said.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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