The Great Black Friday Markdown
(Frank Lynch flickr)
As another Black Friday rolls around, there’s a feeling of desperation — rather than Christmas — in the air.
Competition among online retailers has turned vicious, with deep discounts and free shipping. That makes a shopping trip to the mall ever harder to justify.
There is another reason why consumers may not flood stores this year. Doorbuster specials are old hat by now. Many were launched during the warm fall weather, instead of being reserved to lure shoppers on Black Friday, which is the usual practice. The day after Thanksgiving is called Black Friday because it is when retailers traditionally go into the black as consumers turn out in droves on one of the year’s biggest shopping days.
Illustration by: Matt Mahurin
Still, K-Mart, T.J. Maxx, Burlington Coat Factory and many other stores are pushing layaway programs, a once-popular practice, to get people spending again.
And in the blogosphere, shoppers tout neo-haggling — asking for a discount on everything you can. “I’ve been able to get prices lowered everywhere from the expected (garage sales) to the unexpected (Target),” The Non-Consumer Advocate blogged recently. Macy’s, however, has already issued a statement declaring it won’t haggle.
Everything’s different this year. As consumers know, it’s hard to get in the mood to shop until you drop when it’s the value of your home that’s dropping. Given the dismal economy, some analysts are predicting anemic retail sales and possibly their first-ever annual decline for the holiday shopping season — something that has never happened since the National Retail Federation began keeping records 15 years ago. Typically, holiday sales annually rise by 4 percent.
Even retailers discounting like crazy probably won’t be enough to make wary consumers pull out their wallets, Hoyt predicted. Deep discounting by retailers after the Sept. 11 attacks lured shoppers back to stores, but that won’t work this time around, he says, because the economy’s problems are too severe and far-reaching. In a credit crunch, consumers aren’t likely to reach for the plastic to pay for pricey gifts.
“There’s really not a lot of good news out there for consumers, other than lower gas prices,” Hoyt said. “Their wealth is fading rapidly. Their jobs are at risk. We’re seeing consumer-confidence surveys come back at levels that are very low.”
A holiday shopping season gone bust has repercussions that will reach beyond the New Year.
Poor holiday sales may mean bankruptcies for hard-pressed retailers throughout 2009. That, in turn, would swell unemployment rolls as store workers lose their jobs. And bankruptcies would add to vacant square footage in overbuilt malls and shopping centers, said Meghan O’Brien, an Iowa State University economist who analyzes the retail sector.
The retail sector experienced a bubble that mirrored the housing boom, according to O’Brien. Builders created subdivisions, speculating that buyers of houses would show up. New homeowners needed somewhere to shop nearby. So developers built shopping centers full of big box retailers. But retailing, like housing, grew too quickly, with too many stores selling too much of the same thing — think Gap, then Old Navy, then Banana Republic.
After the subdivisions began to fail, retailers were hit, she said. That’s why commercial real estate is in decline, with more malls reporting vacancies and such retailers as The Sharper Image, Linens ‘n Things and Circuit City in bankruptcy.
“Housing and retail are tied together much more than people realize,” O’Brien said. “It’s all gotten so out of control. … [The] retail bubble … is not as severe as housing, but it’s got to go through a correction too. I think it’s going to be a pretty abysmal retail shopping season and a pretty abysmal year ahead.”
Not everyone agrees. David Wyss, chief economist at Standard & Poor’s, said slow retail sales won’t make the recession any worse than it’s already predicted to be. He thinks the economic downturn will be long but not as severe as some fear. Consumers will turn to gifts of value, like gift cards from retailers not in danger of bankruptcy. Wal-Mart, Costco and other discounters should do well, he said.
Scott Krugman, spokesman for the National Retail Federation, remains somewhat optimistic too. Lower gas prices and pent-up demand from consumers who used to spend a lot on gas will combine to bring shoppers into stores. His group predicts that annual sales will increase by about 2.2 percent. He dismissed as “too much gloom and doom” worries by economists that the season will be weaker.
He and O’Brien differ the most, however, on their views of Black Friday.
O’Brien thinks Black Friday is already sliding into irrelevance, and this year will reinforce that trend. Unusually fierce competition among the online retailers — a change from the past, when discounts weren’t so easily found online — gives consumers an excuse not to head for the mall on Black Friday. And shoppers know they won’t necessarily get the best deal that day because nervous retailers are already discounting their merchandise.
The point of Black Friday doorbuster specials was to lure consumers into stores early and keep them there to shop even more. If they don’t come in the door, retailers are going to be hurt. “[Doorbuster specials] created kind of a frenzied environment that was good for encouraging people to spend money,” she said. “But you’d be crazy to do it if you didn’t have to.”
Going forward, O’Brien sees Black Friday becoming “more of a hollow tradition.”
She’s also unimpressed with stores’ layaway plans, calling them a “relic of the past.” She believes the sales tactic will only attract women in their 50s, who are familiar with i — because an entire generation of shoppers has grown up without such programs. As for neo-haggling, she predicts retailers will quickly put the kibosh on it. All of which means fewer shoppers in stores on Black Friday.
Krugman sees the world differently. He described Black Friday as “a national pastime for a lot of consumers,” a ritual of the holiday season, no matter how bad the economy is.
Banks may fail, jobs may disappear and credit could dry up, but “there still will be people waiting in line” outside some store at 6 a.m. on the day after Thanksgiving.
Whether they do show up will go a long way toward determining what kind of holiday season is ahead for the nation’s retailers.