For Retailers, It's Ugly Out There in More Ways than One

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Inside A Walmart Super Store Ahead Of Black Friday
Patrick T. Fallon/Bloomberg via Getty Images
The 2013 holiday shopping season may end up being remembered for its ugly sweaters and, for many retailers, even uglier discounts.

With growing online competition, no fashion must-haves and weak consumer confidence, most U.S. retailers will have to offer both big discounts and stellar service to get consumers to spend freely, according to retail analysts who joined Reuters reporters on visits to stores in New York, New Jersey, California and Illinois ahead of the holiday season.

"People are being a lot more selective in where they spend their money," said Wedbush analyst Gabriella Santaniello while touring the Westfield Topanga mall in Canoga Park, Calif.

To be sure, with online sales increasing, store visits provide only part of the picture. Still, a trip to the mall with a trained expert provides vital clues ahead of the holiday season, which usually accounts for almost half of retailers' profits.

The battle for the consumer dollar is particularly intense in a year when taxes have risen, unemployment has remained stubbornly high, and confidence has taken a hit from the recent government shutdown and uncertainty over the introduction of President Barack Obama's health care reforms.

Offsetting those negatives has been the wealth impact of a rise in home prices and a rallying stock market, though that is more likely to help the luxury end of retailing.

Most industry estimates see sales growing modestly overall, with online retailers taking a bigger slice of the pie, and electronics stealing share from apparel.

Season of Sweaters and Xboxes?

In a sign of intense competition, there has already been unprecedented price-cutting from the giant discount chain Walmart Stores (WMT), earlier-than-usual deals from online goliath Amazon.com (AMZN), and price-match promises from Best Buy (BBY), Target (TGT) and others, even before the season's unofficial kickoff on Thanksgiving Day.

Wedbush's Santaniello is betting on Urban Outfitters (URBN), American Eagle Outfitters (AEO), and other purveyors of trendy sweaters featuring cutesy animals, phrases such as "totes amaze" (slang for totally amazing) in curly cursive, and "fair isle" patterns.

"This is going to be a Christmas of ugly sweaters. %VIRTUAL-article-sponsoredlinks%That's the hip thing now, bad sweaters are so cool," among 20- and 30-year olds, she said, eyeing an Urban Outfitters tan sweater with a pair of foxes knitted into the pattern of the garment, a technique known as intarsia.

New must-have gadgets such as Sony's (SNE) PlayStation 4 and Microsoft's (MSFT) Xbox One gaming consoles and Apple's (AAPL) latest iPhones and iPads could take a bite out of other holiday gift purchases and hurt some apparel chains, according to analysts.

"There's a limited wallet, and there's going to be a lot of competition from outside the apparel space, which means teens are going to be spending much less money on clothes," said Bridget Weishaar, a retail analyst with Morningstar (MORN).

A visit to a Best Buy store in Chatham, N.J., gave analyst Scot Ciccarelli a reason to recommend the retailer's stock to investors this holiday.

At least four sales associates offered to help Ciccarelli within 20 minutes of entering the store, a huge improvement from last year, the analyst with RBC Capital Markets said.

"The simple fact that people are asking you, 'Can I help?' and are nice and friendly,' is the big difference," Ciccarelli said, showering praise on Best Buy's new management team for investing more in training its sales associates. Best Buy's share price has more than tripled since last holiday season as results have improved.

Wendy Liebmann, CEO of WSL Strategic Retail, expects teen apparel chains to offer bigger discounts closer to Christmas because fashions are "banal" this year and interchangeable, and teens have been trained to wait for the best deals.

Tale of Two Department Stores

Craig Johnson, president of consulting firm Customer Growth Partners, praised Nordstrom's (JWN) selection of jeans and shoes, and said he expects the department store chain to have an "OK" season, though not a blockbuster one because even wealthy shoppers are holding back and looking for sales.

During a visit to its store in Westchester Mall, in White Plains, N.Y., he said he was impressed by its new in-store signs that can be seen from afar and clearly tell shoppers where they can find "power" brands like "Theory," "Vince" and "Burberry Brit," which are especially popular with upscale shoppers.

Macy's (M) hasn't raised its annual sales forecast, but Liebmann expects it to have a solid holiday season because of a good selection of products and because it is well ahead of some rivals in integrating stores and e-commerce, which includes filling online orders from stores.

Liebmann found the level of discounting at Macy's flagship Manhattan store muted, which she said would give it room later in the season to cut prices without going down to alarming levels.

"This is just the beginning, but they're not giving it away yet," said Liebmann, pointing to deals such as 25 percent off on Calvin Klein men's shirts.

At troubled department store chain J.C. Penney (JCP), analysts had mixed views about overstuffed racks of clothing, with some seeing it as a sign of weakness and others that the company was trying to prove to shoppers that it had overcome recent troubles, which included under-stocking of some store brands.

"What one may misconstrue as clutter is merely a strategic effort to meet high customer demand," said Penney spokeswoman Daphne Avila.

-By Dhanya Skariachan in New Jersey, Lisa Baertlein in Los Angeles, Phil Wahba in New York and Nivedita Bhattacharjee in Chicago.

For Retailers, It's Ugly Out There in More Ways than One
We've said it many times already, and we'll say it once more: Black Friday is not the best time to buy toys for the holidays. Many will likely see discounts on Black Friday, and it may feel pretty good to get your shopping done early, but you won't love the sinking feeling you'll get when you see the same toys for even less about two weeks before Christmas.

Speaking of toys, if you're looking to buy a video game console this holiday, you'll get more bang for your buck by opting for a console deal that includes a few extras. In years past, the vast majority of Editors' Choice console deals consisted of holiday bundles that included premium accessories and two or three game titles. These were frequently discounted 30 percent to 40 percent off their retail prices.

A note about next-gen consoles: Unfortunately, we don't expect to see any discounts on the new Xbox One or PlayStation 4 this holiday, bundled or not. However, because these consoles are in high demand and will sell out quickly, we consider just finding one at list price -- even if it doesn't come bundled with a game or controller -- to be a "deal."

Black Friday is an excellent time to buy a new TV, as we predict a variety of size categories will hit their lowest price points. But don't expect the best deals to be tagged with name brands. Typically, the rock-bottom prices apply to third-tier manufacturers; brand-name TVs tend to see their best price of the year in late December as manufacturers look to clear stock before revealing 2014 models.
There's no shortage of digital camera deals around Black Friday, but premium current-generation cameras are just a few months away from being replaced by a new line of 2014 models. If you're eyeing a brand new digital SLR, we recommend waiting until after CES and into February for 2013 cameras to become "old," and thus receive aggressive discounts from retailers.
On Black Friday, we'll likely see some of the best apparel coupons of the year from a variety of retailers. However, if a new coat or jacket is on your list, it's smarter to hold off until January when winter apparel is added to clearance sales that will receive much deeper base discounts. We will inevitably find additional stacking coupons then too, which make end-of-season sales even better for your wallet.
While not typically on anyone's "To Buy on Black Friday" list, Christmas decor tends to end up in-cart on impulse buys. Sure, that string of lights or holiday wreath might be on sale, but deals on Christmas items get better the closer we get to the holiday itself -- and of course the best deals appear after the holiday. Last year, we listed the Musical Charlie Brown Christmas Tree in early November for $19 shipped. On Black Friday it fell to $15 shipped. By Christmas Eve it was available for $9 at Kmart.
For those of you looking to get a leg up on any fitness New Year's resolutions, you should resolve to wait to buy any fitness equipment. During Black Friday weekend 2012, we listed just two Editors' Choice fitness deals, while December and January each saw more than five times that amount on a variety of gear including heart rate monitors, ab machines, ellipticals, and yoga equipment.
We're flagging this category "Do Not Buy" for the entire holiday season. Much like Christmas items, there will be lots of sales advertising shiny, metallic objects perfect for him and her. But the discounts on jewelry around the winter holidays are no better than those around Valentine's Day, when baubles are at their most in-demand. Last year, we posted just four Editors' Choice watch deals and three Editors' Choice jewelry deals from Black Friday through Cyber Monday.
The stylish second-generation iPad mini with Retina will set you back the same amount as an iPad 2 ($399), and if the iPad mini Retina follows the price pattern as its predecessor, it won't see a 10% discount until several months from now. While there's an off-chance that an attention-seeking retailer could offer an iPad mini Retina Black Friday deal, the original, first-generation iPad mini is a better buy this holiday season: the Apple Store has already discounted its retail price to $299, and it could drop to as low as $269 in the coming months.
For the past two years, no new Kindle Fire HD tablet has seen any significant discounts on Black Friday, likely because the tablets are already so cheap. The device has fallen in price, since the addition of the Kindle HDX to the lineup meant that Amazon dropped the price of the Kindle Fire HD to $139. But this dirt-cheap alternative to the higher price points just means that Amazon doesn't need to discount its tablets, which it already sells "at cost." And this week's limited time only 15 percent off coupon doesn't change that; it's the first coupon we've ever seen for new Kindles, and a one-time offer in celebration of the FAA's decision to lift the ban on electronics use during takeoff and landing.
While we don't know anyone who doesn't appreciate a seasonal throw blanket, we don't recommend giving them as gifts this year unless you've got a stock of them in the closet from last season. Not only does holiday decor get cheaper after the holiday in question, but bedding and blankets fall to their lowest prices of the year come January and February during "White Sales," which have been a colorful tradition since the 1950s.
Perhaps better received than throw blankets, gift baskets and wine subscriptions are especially popular during the holidays. But as the giver, you'll get a better deal on specialty foods (i.e. Omaha Steak gift bundles, fruit baskets, and assorted baked goods) if you wait until December; last year we saw twice as many Editors' Choice deals close to Christmas than around Thanksgiving.

If you have your sights set on a trip to California or Florida, by all means purchase airfare around Black Friday and even closer to Christmas; last year we saw up to 50 percent off coupons from Frontier, JetBlue, and Virgin America. However, if it's an international getaway you're after, we advise you to hold off on booking your flight until the new year. Last year, we saw zero Editors' Choice airfare deals between Thanksgiving and New Year's. But in the first two months of the year, Air Canada offered the lowest base rate we'd seen for flights to Toronto; JetBlue took 80 percent off select flights to the Caribbean; and Lufthansa offered roundtrip fares to Europe for $471.

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