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No Thanksgiving rest for retailers in sales race

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Pedestrians pass a shop window display advertising Thanksgiving sales in New York, November 25, 2009.

No Thanksgiving rest for retailers in sales race

NEW YORK (Reuters) – U.S. shoppers may stretch tight budgets this year to reward loved ones after months of thrift, a softening of heart that store chains hope will erase the holiday season sales debacle of 2008.

Retailers from Wal-Mart Stores to Gap, RadioShack and Walgreens are opening their doors on Thursday as U.S. families celebrate Thanksgiving, aiming to capture early bird shoppers a day before the official start of holiday shopping on Black Friday.

The unsettled state of the U.S. economy, with a 26-year high in unemployment and tighter access to credit, has industry holiday sales forecasts varying from a decline of 3 percent to an increase of 2 percent.

“The consumer is confused. They don’t know whether to spend or not,” said Marshal Cohen, senior analyst at retail consultancy NPD Group.

As the holidays draw closer and deeper discounts beckon, consumers may splurge a bit more. Industry experts expect a strong turnout on the Black Friday weekend, but caution it will not mean a bumper holiday season as shopping trails off in the weeks before Christmas.

“The recession last year was a shock to the consumer. This year they are already tired of it,” Cohen said. “They might even reward themselves for being frugal for the whole year.”

The psyche of American shoppers is being closely watched, as a return to spending would drive overall U.S. economic growth. Early hopes for a consumer-led recovery have pushed retail shares up 47 percent this year, compared with a 23 percent rise for the Standard & Poor’s 500 Index.

Cohen, a 30-year industry veteran, travels to malls all along the U.S. East Coast over the holiday weekend. He now sets out on Thanksgiving Day as so many more stores open on the holiday itself. While traffic to stores on the Thursday is relatively light, people who do make it out are mostly hard-core shoppers and highly likely to buy.

“It’s the ultimate conversion factor,” he said.

MILLIONS TO SHOP, BROWSE

Up to 134 million U.S. consumers say they may shop for holiday gifts this weekend from Black Friday through Sunday, according to the National Retail Federation.

That is up from last year’s survey, taken weeks after a global financial crisis erupted, but still below consumer Black Friday plans reported ahead of the shopping season in 2007.

While most research in the last two months showed shoppers planned to spend less or the same in 2009 from a year ago during the holidays, that stance may be softening.

Nearly one-third of consumers surveyed by Deloitte said they now expect to spend more on the holidays than they had planned a month or two ago. Of those shoppers, 86 percent said they would spend more on gifts than previously thought.

The survey, conducted last week and released on Wednesday, polled 1,051 people with a margin of error of plus or minus 3 percent.

Retailers insist they will stand firm this year and not offer the profit-sapping discounts used to clear merchandise off shelves last year. Cohen estimates that markdowns won’t dip below 50 percent off, compared with the multiple discounts of 75 percent and more last year.

While that should help protect margins, it could prove to be a major disappointment to customers.

“With inventories so low, we don’t see the same level of promotion as we saw in prior years, which ought not to attract as many customers,” said David Berman of hedge fund Durban Capital in New York, which specializes in consumer and retail-related stocks.

Even the Black Friday tradition of midnight madness, in which consumers lined up ahead of store openings in the dead of night, may be waning. Many Walmart stores will be open straight through from Thanksgiving Day after a worker was trampled to death last year, while the nation’s biggest chains have already touted huge promotions online for days.

“This year, we are getting Black Friday sales for weeks before Black Friday at Sears, Kmart, Wal-Mart and Best Buy, among others, and have the ability to buy just about every ad online,” wrote Credit Suisse analyst Gary Balter in a note lamenting the lost thrill of Black Friday hunting.

“That is going to hurt sales of winter clothing, as we won’t have to stand in below-zero temperatures for that sliver of a savings,” he said.

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Next sales on target as online business outperforms

Total sales at the clothes retailer between 1 August and 24 December rose 3.1% compared with a year earlier, ignoring the effect of rising VAT.Next Directory sales grew 16.9%.
But its High Street business, which sees some two-thirds of sales, recorded a 2.7% fall, sending Next’s share price 4.3% lower in early London trading.Next has seen its share price rise 39% over the past 12 months, easily outperforming a 5% fall in the broader FTSE 100 index.Shares in some other big retailers also fell in the wake of Next’s announcement, which was the first trading update of the year from a major High Street chain.

Home Retail Group – owner of Homebase and Argos – dropped 4.7%, while car accessories chain Halfords was down 3%.
Profit margins
Next reconfirmed its full-year profits forecast at £565m, narrowing the range to plus-or-minus £7m.
The total sales growth figure of 3.1% was in the middle of its previous guidance of 2.5% to 4%, despite the “slightly disappointing” numbers from its 500 stores.

Next expressed uncertainty in its statement as to why the High Street performance had been so weak, particularly considering that last year’s sales had been hurt by cold weather.One possibility cited in its statement was its long-standing policy of not cutting the price of its products in the run-up to Christmas.

“Next’s own admission of disappointment is a setback to its hitherto robust growth story,” said Richard Hunter, head of equities at brokerage Hargreaves Lansdown.

“The fact that the company did not discount its products in the approach to Christmas may have been a factor, whilst the more general consumer malaise has yet to be corroborated by updates from its rivals.

“In addition, higher sales do not necessarily translate to higher profits, so the fact that the company has been able to maintain operating margins may yet play into its hands.”

Richard Perks, analyst at research firm Mintel, confirmed this view.

“These figures from Next are really pretty good I think,” he told the BBC.

“OK, Next may be – in sales terms – held back by the fact that it wasn’t discounting, but in profit terms it will be a lot better off.”

Mr Perks said he was optimistic about retail sales across the UK – predicting a 4% rise in December.

“People are reluctant to cut back any more on retail, and are cutting back elsewhere, particularly on leisure,” although he added that the rising cost of food was still crimping spending.

Next said it was cautiously optimistic about its end of season sales – which began after the end of its latest reporting period – and expected results to be slightly ahead of budget.

The retailer said it expected sales this year to be helped by a probable freeze in the price of its products.

It forecast generating £200m surplus cash in the year ahead, which it said it would return to shareholders via share buybacks.

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