All I want for Christmas is a deep discount

Bargain hunters' holiday wishes could go unfulfilled as retailers try to preserve profits and Americans continue to spend.

By Parija B. Kavilanz, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Holiday bargain hunters be warned.

As long as Americans keep spending and retailers control their inventory, shoppers shouldn't expect heavy discounts in the run-up to Christmas.

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Or maybe retailers won't resort to the heavy price-cutting at all.

This means consumers will be paying more than they did last year to fill up their gift bags. And for retailers, it's an opportunity to preserve their profit margins during the critical November-December shopping months.

Those two months together account for as much as 50 percent of merchants' annual profits and sales.

John D. Morris, senior analyst with Wachovia Capital Markets, has tracked store markdowns for nearly a decade.

Morris' Sales Rack Index, which tracks discounting by item and depth of price-cutting at clothing and other specialty chains, shows that retailers so far this year have not been more promotional than last year.

"The discounts are very contained year-over-year," Morris said. "That is interesting because it tells me that the kind of sales slowdown that retailers saw in July really hasn't impacted retailers' bottom lines, yet."

To his point, retail sales at stores open at least a year rose 2.9 percent in July. That fell short of last year's 3.9 percent for the same period, according to sales tracker Thomson Financial.

Still, many retailers posted better-than-expected profits in the second-quarter and raised their profit forecasts for the year, including Gap Inc. (Charts, Fortune 500) and J.C. Penney (Charts, Fortune 500).

The fact that some retailers have lifted their profit outlook - despite fears of a housing and credit market squeeze on consumer spending -suggests that they are confident about being able to sell their products closer to full price in the months ahead, he said.

Why? Morris and others credits retailers ongoing efforts to tightly control their inventory.

'Retailers are planning their holiday inventory now," Morris said. "So as the housing and credit crunch garners more attention, [companies] have put the brakes on inventory."

If retailers are comfortable that they won't get stuck with too much unsold product in the coming months, then they won't discount aggressively and avoid "giving away the store" during the crucial holiday sales months, he said.

"I don't sense any desperation from retailers at this point," Morris said.

Eric Beder, analyst with Brean Murray, Carret & Co., agreed with Morris.

"Retailers adjusted their inventories for back-to-school. So even though discounts weren't great, stores still made money," said Beder. "I expect holiday sales won't be robust but retailers will still make money from less discounting."

However, one retail analyst wasn't so sure.

"Yes, inventories are well under control but you can't discount the offsetting factors," said Mark Montagna, analyst with CL King & Associates.

Besides the economic risks weighing on consumers, Montagna is also wary of Mother Nature, which could be even harder to predict.

"Last December was very warm. So even though apparel chains were on top of their inventory, they were forced to cut prices later on to avoid a disastrous holiday season," he said.

"For me, it's just too early to tell," Montagna said. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.