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Bargain frenzy: Retailers jittery?
Kohl's has 50% off on sweaters; Penney offers 50% off on home products; Sears cuts jewelry prices.
November 14, 2005: 3:00 PM EST
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - Forget about Black Friday. Many retailers, especially the department store chains, are already chopping and slashing prices in a frantic bid to draw bargain-hungry shoppers and their crucial holiday dollars.

For example, Sears (Research) currently has 40 percent to 50 percent discounts on all jewelry; J.C. Penney (Research) is offering 20 percent to 50 percent off on bed and bath products, home furnishings, and winter clothing; and Kohl's (Research) has a 50-percent-off bargain bonanza on sweaters.

George Whalin, an independent retail analyst, said he's noted the escalation of holiday promotions this year.

He attributed this partly to nervousness on the part of retailers about consumers' spending ability going into the peak of the gift-buying season.

But he also pointed to what he calls the "changing retail environment" that is forcing retailers to speed up their yearly sales calendar.

Said Whalin, "You can't ignore the tremendous growth in online retailing and in the catalog business. Consumers are aware of the hot products and sales much earlier and they're doing a lot of their shopping on the Internet or through catalogs."

"If department stores want a part of the holiday pie, they will have to start competing much earlier," he added.

This year, some retailers started flooding stores with their big red sales signs as much as three weeks ahead of the typical start of the Black Friday holiday sales mania.

"It's going to be a very heavy and aggressive sales season overall," Whalin said.

The day after Thanksgiving is dubbed "Black Friday" because it traditionally marked the period when retailers finally moved out of the red (representing losses) and into the black (profits).

Just how popular is Black Friday with shoppers?

According to the International Council of Shopping Centers (ICSC), Black Friday was the second-biggest sales day of 2004. The Saturday before Christmas was the biggest.

The National Retail Federation estimates that 133 million shoppers hit stores on Black Friday and the weekend combined.

Craig Johnson, president of retail consulting group Customer Growth Partners, said department store chains have little choice but to lure customers with juicy deals.

"These guys' sales have not been as strong as some of the well-known specialty retailers," Johnson said. "Their problem is that department stores have a muddled value proposition."

In other words, consumers aren't convinced that they getting "unique" products for their money when they shop at mid-priced department store chains, which tend to sell many of the same brands.

Even if retailers wanted to hold off on early promotions to protect their profit margins, consumers won't allow it.

"Consumers aren't idiots," he said. "Especially with clothing stores, they know that whatever is at full price one week will be discounted the next. So they will wait for the sales. If the sales come later, they will shop later."

However, the exception to the rule are high-end department stores like Nordstrom (Research) or specialty apparel chains like Chico's (Research) and Urban Outfitters (Research).

"These retailers sell stuff that is unique to them," Johnson said. "They are able to develop strong customer loyalty. The weaker stores aren't. People continue to shop there even if they don't get big sales on things that they really want."

Similarly with consumer electronics chains like Best Buy (Research) and Circuit City (Research), Johnson said he doesn't expect both chains to "follow Wal-Mart to the bargain basement."

Said Johnson, "Wal-Mart doesn't directly compete with Best Buy or Circuit City because of its limited brand assortment and low-end products. If consumers want to buy a name-brand product along with consultation or installation services, they will pay the premium at a Best Buy."

Ken Perkins, analyst with Retail Metrics, said he believes retailers are less nervous today than they were when the price of a gallon of gas hit a record $3 in the aftermath of the hurricanes.

"We're almost a full dollar below those prices now," he said. Still, he said retailers are wise to discount early because of the uncertainly about the winter and its impact on home-heating bills.

"The bills that come in the mail in January could be very big," Perkins said. "So it's a good idea to pull in consumers now rather than gamble on sales picking up later in the season if the weather turns colder."


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