Black Friday, Blue Christmas

Retailers enjoyed better sales over the weekend than expected. But few believe the good news will last and some fear a wave of bankruptcies ahead.

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By Paul R. La Monica, CNNMoney.com editor at large

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NEW YORK (CNNMoney.com) -- Happy Cyber Monday! If the crowds on Black Friday were any indication, it looks like consumers will be busy surfing the Web for deep discounts as well.

Sales over the Thanksgiving long weekend were surprisingly strong. The National Retail Federation estimated that consumers spent $372.57 on average, an increase from 7.2% from a year ago.

But the NRF is predicting just a 2.2% increase in holiday shopping sales this year, which would be the smallest increase since 2002. Even that forecast is considered too rosy by many other industry experts.

After all, the healthy sales on Friday may merely be yet another reflection of how weak the economy is: i.e. people rushed out to find the best bargains but may now retreat once the sales are over.

"Frankly, Black Friday serves as much more of a media spectacle than a true barometer of the relative health of the consumer and retailers. The next two weeks, when pricing reaches somewhat more normal levels, should tell the true tale," wrote Eric Beder, a retail analyst with Brean Murray Carret & Co., on Monday.

Beder, who follows specialty apparel retailers like Aeropostale (ARO), Guess? (GES) and J. Crew Group (JCG), added that he expects the holiday season to be "tough" and that "overall spending will decline in the low single digits."

That Thanksgiving was relatively late in the month this year also lent to the urgency on the part of shoppers.

Thanksgiving and Christmas are separated by only four weeks this year. Last year, Thanksgiving was on Nov. 22, which meant there were five weekends between Turkey Day and Christmas.

Daniel Binder, a retail analyst at Jefferies who follows Wal-Mart (WMT, Fortune 500), Kohl's (KSS, Fortune 500) and other discount retailers, said in a report Monday that customers his research team interviewed at stores over the weekend consistently indicated that they "really needed to get the deals this year as tough times were tougher."

He added that store managers felt that "judging by sales results they couldn't believe we were in recession" but that many pointed out that "that they were concerned that traffic would now fall off quite a bit the next few weeks."

Stuart Hoffman, chief economist with PNC Financial Services, shared this gloomy assessment. He predicted that there won't be much "excitement" for retailers between now and the last weekend before Christmas.

At that time, he suspects that many retailers may be forced to slash prices to get rid of inventory....even if they have to sacrifice profits to do so. And another round of big sales might be the only thing to lure shoppers back to the malls.

"Consumers can smell a bargain a mile away and they are more determined than ever to get that deeper discount," he said. "With that in mind, at best it will be a flat holiday season for retailers and many of them won't match last year's sales."

A lackluster holiday shopping season is bad news not just for retailers either, argues Tom Higgins, chief economist with Payden & Rygel, a Los Angeles-based money management firm.

Higgins said he's worried that retailers are going to cut prices so low that it will be difficult, if not impossible, to make a profit during the quarter. And that could eventually lead to more retailers filing for bankruptcy. Linens 'n Things, Steve & Barry's and Circuit City (CCTYQ) have already done so this year.

Circuit City is still operating but Linens 'n Things and Steve & Barrry's are in the process of liquidating their assets. Higgins fears that more retailers will go this route and that could delay an economic recovery since it would cause unemployment to head even higher.

"You're going to see a lot of retailers disappear. That could lead to more layoffs of course," Higgins said."That's our main concern -- job losses and the repercussions that will have for consumer spending next year and the housing market."

Of course, it's probably smart of consumers to be more price-conscious in this environment and cut back on their spending during the holidays. That said, a weak holiday shopping season is likely to have ripple effects on the broader economy well into early 2009.  To top of page

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