Focusing on bargains

Bloomberg

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Cash-strapped shoppers were searching for bargains in the final days before Christmas and some are limiting their gift-giving to children in what could be a make-or-break weekend for U.S. retailers.

Consumers who waited until now for deeper discounts probably will be rewarded as retailers seek to clear inventory and salvage what may be the worst holiday season in 40 years, even though their fourth-quarter profits may suffer as a result.

Macy’s, the second-largest U.S. department-store chain, offered $800 sapphire or ruby and diamond rings for $249 Sunday. Gap’s Banana Republic chain advertised clothing for as much as 60 percent off. A $2,100 Marc Jacobs dress was listed at $629.95 on Saks Inc.’s Web site. Toys "R" Us cut prices on Elmo dolls.

"We’re buying less stuff for each other and just overall," Dennis Decker, a 47-year-old landscape architect, said on Sunday outside a Kohl’s in Douglasville, Georgia. "Usually I buy stuff for my sisters. This year I’m just going to make them some Christmas ornaments."

The Standard & Poor’s 500 Retailing Index has shed 31 percent this year, with only two of its 27 companies gaining. The index does not include Wal-Mart Stores, the world’s largest retailer.

Pent-up demand
Toys "R" Us is cutting the price of Mattel’s Elmo Live furry red Muppet through Dec. 24 by $10 to $49.99 and reducing Jakks Pacific’s EyeClops Night Vision Infrared Stealth Goggles by $20 to $59.99.

"I do believe this is going to be one of the largest weekends in retail history," Toys "R" Us Chief Executive Officer Gerald Storch said Dec. 19. "There’s a lot of pent-up demand, and there’s going to be fantastic deals."

Shoppers grappling with shrinking housing prices and rising unemployment have cut back on non-necessities, pushing the U.S. economy into a recession. Consumer spending accounts for more than two-thirds of gross domestic product, and 81 percent of consumers plan to spend less this holiday season, according to a study by NPD Group.

At least a dozen retail chains, including Circuit City Stores, have sought bankruptcy protection this year. A credit squeeze may result in thousands of locations being closed in 2009, Gregory Segall, a managing partner at Versa Capital Management, said Dec. 17.

"This year, you have many retailers just trying to clear inventory to raise cash rather than to achieve highest profit," said Linda Tsai, a retail analyst at MKM Partners.

Average Americans have finished almost two-thirds of their holiday shopping, according to a survey conducted by BIGresearch.

Don Farmer, 40, found a job this year at a firm that makes rolling steel doors after being out of work for about six months. The Temple, Georgia, father of four daughters said he’s spending less this year and just started shopping this weekend.

Just back on feet
"I just got a job in May and I’m just getting right back on my good foot," he said Sunday after he filled out a credit application at the Kohl’s in Douglasville, drawn by the offer of 30 percent off his purchases.

Alex Galvez, 28, an automotive technician who works in Long Beach, California, said he lost half his income this year as the auto industry neared collapse. He was shopping at the Westfield Santa Anita mall, in Arcadia, California.

"In past years, we’d probably get 10 gifts for each of our nephews," he said. "This year it’s probably one."

The International Council of Shopping Centers has estimated that in November and December, sales at stores open at least a year may decline as much as 1 percent.