Black Friday Sales Rose, But More Discounts Loom

Shoppers flooded stores over the weekend, but sales growth was slim and a harsh holiday selling season seems likely. Specialty stores lagged

At 3 a.m. on Black Friday, Eric Sjoberg, 29, wasn't camping outside a store in a long line to get first dibs on the "door-buster" discounted items that have come to characterize the day that traditionally kicks off the holiday shopping season. Instead he was picked up from his home by a limo from electronics retailer Best Buy (BBY) and transported to a nearby store in Needham, Mass. There he was greeted by cheering employees and let into the store at 4:30 a.m.—a half-hour before it officially opened. Sjoberg purchased a 50-inch plasma-screen TV, a laptop, and several DVDs, exiting just as the crowds stormed in.

"This Black Friday was an opportunity to make the holiday very special for our family on a tight budget," said Sjoberg, who had won a VIP Black Friday contest run by Best Buy.

Such over-the-top treatment shows just how desperate retailers are to grab what shoppers they can in what is shaping up to be their most difficult holiday shopping season in decades. In one sense, the deep discounts and heavy promotions for Black Friday worked: More than 172 million shoppers around the country visited stores and retail Web sites during the post-Thanksgiving weekend, up from 147 million last year, according to the National Retail Federation.

Deepening discounts

But few stores are celebrating. Sales growth was anemic: Shopper Trak, a firm that follows mall traffic, reported that Black Friday retail sales totaled $10.6 billion, up 3% from a year earlier, compared with 7% growth for the same period in 2007. And with so much price slashing, many of those sales probably won't generate profits. Consider that Sears Outlet was throwing in a free washer for every $700 dryer sold, and Old Navy (GPS) had scarves and hats discounted to $1.00.

Indeed, retailers such as Kohl's (KSS), Wal-Mart (WMT), and Toys "R" Us are offering some of the biggest savings shoppers have seen in decades. No wonder. Consumers are under siege, struggling with sky-high credit-card bills, sinking home values, and even layoff notices. Consumer spending was already down 1% in October—the biggest drop since the terror attacks of 2001, according to the Commerce Dept.

Still, the sight of so many shoppers was reassuring to merchants that rely on holiday sales for up to 50% of annual revenues. According to the National Retail Federation,which surveys shoppers as opposed to tracking actual sales, shoppers spent an average $372.57 over the Black Friday weekend.

These Days, Clothes Are Us

As might be expected, discount stores fared best in the initial holiday surveys. They attracted 54.7% of shoppers over the weekend, a slightly smaller share than they did last year. Phil Rist, an executive vice-president with BIGResearch, which conducted the survey of nearly 3,400 shoppers for the NRF, said: "Weekend shoppers indicated that they are still sticking to a budget and thinking carefully before making any holiday purchases."

Department stores did surprisingly well. Many analysts had expected their reliance on such discretionary merchandise as furniture and home decorations to make those chains vulnerable to cutbacks. But in the NRF's survey, 46% of shoppers went to traditional department stores, up 10% from last year. Overall, 51% of the shoppers surveyed bought clothing, up from 47% last year.

The department stores' online sales were strong, too, according to Coremetrics, which analyzes the online shopping patterns for 300 retailers, including Macy's (M), J.C. Penney (JCP), and Bloomingdale's. Shoppers spent an average $139.32 on department store Web sites, the firm said, up nearly 11% from last year. As for losers, specialty retailers such as clothing or toy stores were overlooked by many, drawing a mere 36% of shoppers in 2008, vs. 43% last year.

But a spike in sales on Black Friday will not undo a terrible month for most retailers. ComScore, which tracks e-commerce spending, found that while Black Friday saw $534 million spent online, a 1% increase since Black Friday 2007, overall spending for the first 28 days of November, the holiday season-to-date, was $10.41 billion, down 4% for the corresponding days last year.

Furthermore, analysts predict the Black Friday weekend bump won't last. "Holiday sales are not expected to continue at this brisk pace," says Tracy Mullin, the NRF's president and chief executive officer. Stores are likely to keep slashing prices, even as discounting further eats into profits. Observes Eric Johnson, a management professor at Dartmouth's Tuck School of Business: "They are weighing that possibility with the much uglier possibility of having a lot of inventory left after Christmas, which could be a complete disaster."

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