Holiday Season May Already Be Over For Frantic Retailers
NEW YORK — The holiday shopping season begins Friday with a blitz of early morning specials. For some merchants, though, it's practically over already.
Piles of jewelry, clothing and electric drills are bypassing store shelves and heading straight to liquidators by the caseload as stores try to save as much cash as they can.
Major department stores and mall-based chains have cut prices up to 70 percent to move out mounds of excess inventory stuck in the pipeline since the financial crisis hit in September and people snapped their wallets shut.
Big moves of merchandise happen every year _ but usually after Christmas. This year stores are desperate to shed inventory even before Thanksgiving.
"The holiday season is over. The reason? It just never got started," said Marshal Cohen, chief industry analyst at NPD Group, a market research firm. "How cheap things are doesn't bode well for holiday success."
The deep price cuts even on luxury brands _ think 40 percent off on $5,000 Chanel suits and 70 percent off on designer shoes at Saks Fifth Avenue and 40 percent off $695 Ralph Lauren leopard-printed pumps at Bloomingdale's _ are only good news for the dwindling pool of consumers who are comfortable enough financially to take advantage of the deals.
Experts say discounts are only going to get even better as stores resort to more extreme measures to clear out unsold items. The value of coats and sweaters drops dramatically as the winter months wear on.
Still, there is some incentive for choosy consumers to buy early: increasingly lean inventories mean that certain colors, sizes and styles may sell out early. For those who are open minded, it's a bargain hunter's dream.
It wasn't supposed to be this bad. Stores, which typically place orders about four to seven months in advance, had cautiously planned their holiday inventories about 15 percent below last year's levels.
But because of the free fall in consumer spending, stores are now stuck with about 15 percent to 20 percent excess holiday inventory, estimated Burt P. Flickinger, managing director of Strategic Resource Group.
Richard D. Hastings, a consumer strategist with Global Hunter Securities, says the latest culprit _ fear of deflation _ is also causing stores to dump inventory. Clothing and other merchandise is worth less now than it was even three months ago.
"Prices are slipping too fast, and so by the time you sell the product, stores are not covering their operating expenses," he said.
But stores are only making matters worse. The more they discount and send to liquidators, the lower the prices become. Consequently, stores generate less in sales.
Still, in the current economy, they have no choice. Carrying inventory is a big expense, and stores need to preserve cash at a time of tightening credit.
At warehouses operated by Liquidity Services Inc., a leading online auction company for surplus goods, there are rows and rows of pallets of offloaded merchandise ranging from jewelry to consumer electronics.
At the company's Liquidation.com, which auctions surplus goods offered by stores and manufacturers to dollar stores and small businesses that sell on eBay, the number of auctions scheduled for the Thanksgiving weekend has soared to 2,100 _ eight times more than last Thanksgiving, said chief executive Bill Angrick.
In other words, what normally happens after Christmas is taking place this weekend, he said.
"This is about survival. This is not about muddling through the holiday season," Angrick said.
Inventory has doubled from a year ago at Overstock.com, which offers brand-name merchandise at discount prices, said CEO Patrick Byrne. Stores are unloading top-notch brands such as Gucci and Prada in recent weeks at a rate he's never seen in the company's nine-year history. And more is arriving by the truckload.
"It's like an avalanche," Byrne said.
The financial crisis, the meltdown in the stock market and cascading job losses have sent shoppers into full retreat. Even before the holiday season, stores were reporting the biggest drops in sales in decades.
Eileen Klockow, 41, doesn't expect to start her holiday shopping until mid-December, when the post-Thanksgiving rush ends and she can shop in leisure. An accountant from the Milwaukee suburb of Wauwatosa, Klockow said she's not procrastinating, just biding her time for sweeter deals.
"I'm waiting because I think sales will be better later in the month," she said.
How bad will the season ultimately be for stores? Mark Vitner, senior economist at Wachovia Corp., expects total retail sales to fall 0.5 percent for November and December. That would be the first decline in holiday sales since 1982.
In the last few Christmas seasons, analysts have worried about holiday sales making only weak gains. This year sales are expected to contract from a year ago, making this a do or die season for the weakest stores.
Profits are eroding quickly, and there have already been a string of bankruptcy liquidations from Mervyns LLC to Linens 'N Things. Circuit City Stores Inc. filed for bankruptcy protection this month, and analysts expect more to come.
Even for Overstock.com, there's a limit to all those Pradas it can buy.
Byrne noted that his buyers are becoming "gun-shy" as they calculate how much a pair of Prada shoes, for example, will be worth after Christmas if the discounts at stores get even deeper.
"If goods are not sold by Christmas, the value keeps going down," he said.
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AP Retail Writers Ashley M. Heher in Chicago and Sarah Skidmore in Portland, Ore., and AP Business Writer Dinesh Ramde in Milwaukee contributed to this report.
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ANNE D'INNOCENZIO | November 27, 2008 04:33 AM EST |