Shoppers start holiday marathon
Black Friday crowds spend an estimated $20 billion. The big question for the economy: Will they keep buying?
NEW YORK (CNNMoney.com) -- Worried retailers and mall operators breathed a sigh of relief after the 2007 holiday shopping marathon off to a robust start Friday.
According to the first early sales estimate, MasterCard Advisors retail analyst Michael McNamara expects Black Friday sales to hit $20 billion. MasterCard Advisors tracks spending made on credit and debit cards as well as cash and check transactions.
McNamara said the estimate represents 5 percent of total expected holiday sales and slightly outpaces last year's Black Friday sales of $19.1 billion.
However, some industry analysts caution that the early buying frenzy could soon peter out - and endanger crucial weekend sales - as millions of pre-dawn shoppers succumb to shopping fatigue.
"The early bird shoppers are definitely out there. But will it last through the day?" said Marshal Cohen, chief industry analyst with market research firm NPD Group.
Already, Cohen estimates that mall traffic in the early hours appeared to be down slightly compared last year.
"I'm basing this on mall parking lot capacity and the actual lines in front of stores before they opened today," Cohen said. "Last year there were 200 to 300 people waiting for stores to open on Black Friday. This year, it's maybe 100. And when these 100 people get in, that's it. I'm not seeing a second big rush into the store."
To his point, a Wal-Mart (Charts, Fortune 500) store in Union, N.J., seemed to attract a smaller crowd than last year for its 5 a.m. opening. The shoppers who came out rushed to grab toys such as the Bratz fashion dolls and Dora products and electronics like the Polaroid 42-inch LCD TV set for $798 and a Magnavox DVD/VHS player for $69.
"[Today] will be an OK sales day, but the big issue is whether or not we'll get a slowdown midday," said Cohen. "I'm waiting to see how sales do today and the weekend. All three days are important, although I think Sunday will be much quieter than last year."
The day after Thanksgiving is dubbed Black Friday because it traditionally marks the day when retailers finally move out of the red, indicating losses, and into the black, representing profit.
It also sets the tone to the four weeks of gift-buying leading up to Christmas. Moreover, November and December, together, can account for as much as 50 percent of merchants' annual profits and sales.
This year's Black Friday rush is even more critical for retailers, who are facing a tepid sales forecast for holiday 2007. The National Retail Federation expects total holiday sales to grow 4 percent to $475 billion, its slowest growth in five years as millions of American households curtail their spending habits amid a housing downturn and other economic pressures.
If holiday sales come in below 4 percent, experts fear it could result in a retail industry shakeout marked by store closings in 2008.
"Retailers still haven't felt the full impact of the housing slump, sub-prime [mortgage] collapse, credit card problems and fuel prices on American households and their ability to spend," said Tim Finley, former CEO of men's specialty chain Jos. A Bank who is now managing director with turnaround consulting firm Alvarez & Marsal.
Retail analyst Britt Beemer said he, too, expects the shopping momentum to wane by mid-afternoon and in the coming weeks.
"Stores have opened much earlier this year and this will have a negative impact on sales," Beemer said. "If you are up at 4 a.m. to go to J.C. Penney or Kohl's, chances are when you're done, there's no more shopping left for you in the day."
Overall, Beemer expects holiday sales to grow a disappointing 2 percent. "I'm sticking to that forecast unless I see something improve dramatically over the next two weeks."
Specifically for Black Friday, Beemer said retailers did the right thing by using deep discounts to attract the early crowds but he's concerned that merchants may have killed the Friday after-work shopping rush in the process.
Some mall operators, however, took a different view.
Wally Brewster, spokesman for General Growth Properties, which operates more than 200 malls nationwide, said the company had similar concerns to Beemer's when some of its malls held midnight openings last year for Black Friday.
"But when we looked at the combined sales for Friday and the weekend, total sales at malls that opened at midnight showed a higher increase compared to our malls that didn't," Brewster said. "We'll see if that happens again this year."
So far, retailers do have more to cheer than complain about.
Black Friday's bargain frenzy kicked off just after midnight as throngs of shoppers shrugged off Thanksgiving Day fatigue to grab early bird sales on flatscreen TVs, clothes, jewelry and toys.
Electronics - especially high-definition plasma and LCD TVs, GPS navigation devices, Apple's iPhone and MP3 players - were expected to be among the most sought-after items.
Many retailers offered "doorbuster deals," which are special sales offered only for the first few hours on Black Friday. Some chains, including Kohl's and J.C. Penney (Charts, Fortune 500), opened at 4 a.m. nationwide.
"We had people camping outside the store from last night. They brought blankets, chairs, tents. They're really excited," said Andre Sam, an employee with a Best Buy (Charts, Fortune 500) store located in Manhattan.
By 8 a.m., Sam said a few of the hot items were already sold out."The $900 Panasonic 40-inch HDTV, the Samsung 40-inch HDTV and the $399 Sony laptop are gone," Sam said.
The first big shopping day of the holiday season also attracted plenty of international shoppers, taking advantage of weakness in the dollar.
This year, mall operator Taubman Centers offered $20 gift vouchers to Canadian shoppers to splurge at its four Detroit-area malls on Black Friday.
Taubman Center spokeswoman Karen MacDonald said the Windsor-Detroit Tunnel already had a 30 minute backup as early as 5 a.m. on Friday.
"Border security told us that nine out of 10 people driving in from Canada were shoppers," MacDonald said.
Elsewhere, Toys "R" Us CEO Gerald Storch told CNNMoney.com that it was "pandemonium" inside the the Toys "R" Us flagship in New York's Times Square when doors opened at 5 a.m.
"The lines outside were twice as long as last year because we're offering 101 doorbuster items, which is four times as much as last year," Storch said, adding that he was "encouraged" by the crowds given this year's spate of toy recalls that affected millions of products.
"I think parents are very smart. They know that with all the additional testing done after the recalls, we're only selling the safest toys," he said.
According to Storch, the hottest sellers were the Microsoft Zune MP3 player, Transformers toys, Hannah Montana dolls, Nintendo's Wii and the Guitar Hero videogame.
North of Atlanta, unusually heavy traffic was seen at 4:30 a.m. ET on exit ramps near malls and big stores in Cumming and Alpharetta, Ga.
Crowds flocked to the Tanger Outlet center in Riverhead, N.Y., as early as 11 p.m. on Thanksgiving Day for the mall's midnight opening.
"We estimate that more than 10,000 shoppers were already at the center before it officially opened today," Janine Nebons, general manager of Tanger Outlet center, wrote in an e-mail to CNNMoney.com.
"We estimate that more than 10,000 shoppers were already at the center before it officially opened today," Nebons said.
She said some shoppers waited as long as three hours to get into stores such as Coach, while many young shoppers rushed to grab deals on name brands such as Nike, Guess, Lucky Jeans and Juicy Couture.
Sears (Charts, Fortune 500) spokesman John Casey said the crowds at Sears stores exceeded 1,000 on average when doors opened - despite the retailer not offering early bird shoppers free gift cards this year.
"People were rushing to pick up the Sharp 46-inch LCD TV for $999. Jewelry is going like hot cakes and our Craftsman drill for $39.99 is a big seller," Casey said.
Good weather in the Northeast and Southeast also "helped put people in a great mood to shop," he said.
Industry expert Stevan Buxbaum said retailers could catch a break this year because of an extra shopping week between Thanksgiving and Christmas.
"Retailers have a few more days to really drive sales over the holidays. They've worked hard to keep inventories lean and they've set holiday discounts very early," said Buxbaum, who is executive vice president of consulting firm Buxbaum Group.
Merchants with tightly controlled inventory will survive the holidays with decent sales, Buxbaum said. Electronics sellers will be winners "in terms of dollar volume and not necessarily unit volume growth," he said.
Lack of appealing fashion trends could dent clothing sales in the days ahead while some high-end retailers will struggle, especially names such as Coach that represent "aspirational" luxury for mid-income consumers, he said.
Come January, Buxbaum said retailers need to quickly transition into fresh spring merchandise, which they can sell at full price to post-holiday gift card shoppers.
"It's all about 2008 now," Buxbaum said. "Retailers have to be in stock in their core items and keep inventory under control. Maybe they will slow down growth and manage costs through more direct sourcing."
Despite all these challenges, the holiday season overall is still vital for the industry, said Ernst & Young's retail analyst Jay McIntosh.
"You can't completely ignore [it]. Shoppers will reward excellence by buying at stores that have great merchandise, aggressive prices and customer service," he said. "There will be some retail winners."