It's Going to Be a Buyer's Christmas
Let's go over a few of the reasons why even in an improving economy you're going to be seeing a lot of discounting and aggressive pricing this season.
1. A Few Chains are Already Promising Big Savings
Walmart (WMT) knows that this will be a challenging holiday season. Comparable-store sales rose just 0.3 percent during last year's fiscal fourth quarter, and it's targeting flat comps this time around. Walmart's blaming everything from the end of the payroll tax stimulus this year to Obamacare for keeping customer spending in check. It knows it's going to have to deliver greater deals than usual.
"Walmart has aggressive plans to help our customers enjoy the holiday season and find fantastic gifts for loved ones, while maximizing their budgets at the same time," management said during its mid-Novermber earnings call.
Best Buy (BBY) was listening, offering its own aggressive approach a week later when it warned that competitive pricing will hurt margins this season.
"We're highly aware of the public statements that are being made by our competitors as it relates to their promotional plans for Black Friday and the fourth quarter," it said during last week's earnings call. "We know that we will be facing an increasingly promotional environment."
2. Some Retailers Have Too Much Inventory on Their Hands
J.C. Penney (JCP) has a lot of merchandise on its hands, and that's going to be good news for deal seekers. The struggling department store chains closed out its latest quarter with more than $3.7 billion in merchandise inventory, well ahead of the nearly $3.4 billion it had a year earlier.
%VIRTUAL-article-sponsoredlinks%What do you think a mall retailer with sluggish sales will do with that inventory? That's clearance fodder right there. J.C. Penney is forecasting inventory will be whittled down to $2.85 billion by the end of January, but that's also well above the $2.34 billion it was reporting a year earlier. So expect the markdowns to keep coming.
3. The Calendar is Making Retailers Nervous
Thanksgiving takes place on the fourth Thursday of November, making this year's Nov. 28 holiday -- and Black Friday on Nov. 29 -- the latest possible start to the holiday shopping season.
Retailers will have fewer days to woo shoppers, and that's one of the reasons why so many are opening on Thanksgiving. It goes beyond having shoppers come in with some turkey gravy on their collars.
Walmart's vowing to match competitor Christmas ads all season long, and Best Buy is also expanding its price-matching initiatives.
Shoppers are also a lot smarter than they used to be. Armed with smartphones, price comparisons are just a click away. Websites scour digital coupons, arming consumers with even more tools to mark down their purchases.
Retailers are also getting more desperate than ever. Sears' (SHLD) Kmart began advertising its layaway offering in early September. Walmart bragged during its mid-November earnings call that it will be the most active advertiser of the season.
"We invested heavily in marketing this year to ensure everyone hears our message," Walmart said, vowing to generate 25 billion impressions this year. You don't spend that much to reach shoppers unless you have a strong value message.
Get ready to save, America.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days.