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Discounters May Gobble Sales

Retail: Bargain-hungry shoppers are expected to hit stores such as Target on 'Black Friday,' the day after Thanksgiving.

November 26, 1998|From Bloomberg News

NEW YORK — Wal-Mart Stores Inc., Dayton Hudson Corp.'s Target and Kohl's Corp. are expected to lead U.S. retailers in sales this Friday, as shoppers hunt for brand-name clothes, toys and household goods at bargain prices at the start of the holiday shopping season.

The day after Thanksgiving--nicknamed "Black Friday"--is one of the biggest shopping days of the year. Retailers use the four-day weekend to showcase their main gift ideas, drawing in consumers with moderate discounts or giveaways.

Shoppers are likely to buy traditional gifts--apparel, toys or kitchen goods such as dishes--at Kmart Corp. and other discounters. Specialty shops and online sites that sell personal computers, video games and home furnishings such as bed linens are also expected to benefit as low interest rates and a spate of mortgage refinancings give consumers extra cash.

"This is a Christmas that leans toward big-ticket spending: housing-related stuff such as furniture and appliances, big-screen TVs and computers," said Diane Swonk, an economist at Banc One. "It's not a traditional Christmas."

Sales at stores open at least a year are expected to rise 4.5% to 5% in November and December, about the same as last year, which was the best holiday season in the last five years, according to Bank of Tokyo-Mitsubishi.

So-called same-store sales are a key indicator of a chain's business because they exclude new, renovated or closed stores.

With 28 days between Thanksgiving and Christmas, consumers have one more day than last year to shop for the holiday season, which can generate as much as half a retailer's annual profit.

Spending could top estimates if consumer confidence continues to be buoyed by an economic expansion that began in April 1991, low inflation and unemployment rates near 28-year lows.

Consumer confidence rose more than expected in November, rebounding from an 18-month low a month earlier, as the Federal Reserve Board cut interest rates for the third time in two months and the Dow Jones industrial average surged 20% during 45 days.

That bodes well for the holidays. The Conference Board expects the amount the average person will spend on gifts to rise 6.9% to $497 from last year.

"The only way you can describe [the season] is blockbuster," said the group's senior economist Delos Smith. "I was surprised by it; it's so optimistic."

About 40% of shoppers expect to spend more this year, according to America's Research Group. That's the highest level since the research firm began its survey in 1993, and marks an increase from 36% last year. About 42% of the 1,000 people polled said they'll spend $751 to $2,500, up from 30% last year, the group said.

More of that spending will take place online. The number of households shopping on the Internet by year-end is forecast to almost double to about 9 million, said Forrester Research Inc.

"We'll absolutely break all sales records this year online," said Jolene McGowan, company spokeswoman for clothing retailer L.L. Bean Inc.

Online retailer Inc. is being joined by traditional chains such as Kmart, Sears, Roebuck & Co. and Nordstrom Inc. that are opening Web sites in time for the holidays.

Sears earlier this month put its Wish Book toy catalog online, which sells more than 2,300 toys, gifts and services. Kmart added music compact discs and cassettes to its site, which also sells vitamins, household products and promotional items.

Catchy advertising and creative fashions such as cargo pants are also expected to boost sales at apparel retailers such as Gap Inc., Ann Taylor Stores Corp. and Abercrombie & Fitch Co.

These shops stole third-quarter sales from department stores as consumers avoided vast racks of branded clothing for the smaller stores with an emphasis on customer service. That's expected to continue through the end of the year, analysts said.

"They've got the right mix of merchandise," said Society Asset Management portfolio manager Thomas Buynack.

The move to big-ticket or bargain-priced gifts is expected to squeeze sales at department stores, which don't offer either.

Chains such as J.C. Penney Co. and Federated Department Stores Inc. slashed prices as much as 50% before Thanksgiving to clear items that didn't sell the last few months.

"The mid-market department-store group is a critical one to watch because that's where you'll probably see trouble," said Buynack.

J.C. Penney said it expects sales at stores open at least a year to rise between 1% and 3% this holiday, trailing Wal-Mart's forecasts for a gain of 4% to 6%

Still, many shoppers will wait until the last week before Christmas to finish in the hope that retailers will slash prices, which is why sales often soften during the middle of December and don't pick up until the Saturday before Christmas.

That day has become the most important shopping day of the year, said Ken Volk, divisional director of marketing for Simon Property Group, which runs 49 malls from Miami to Boston.

"We have become procrastinators," Volk said. "People have less time and are looking for values up to the last minute."

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