Black Friday halo dims as '08 jitters erupt

While deep discounts will get retailers through a mediocre holiday season, the bigger worry is how merchants will manage a post-holiday sales slump.

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By Parija B. Kavilanz, senior writer


NEW YORK ( -- While millions of bargain-hungry Americans count down to Black Friday, experts are already looking beyond what's expected to be a mediocre holiday season to how retailers do damage control in 2008.

"The holiday season is what it is. In the mind of a retail person, the holiday season is over," said Tim Finley, former CEO of men's specialty chain Jos. A Bank (Charts). "If I were still the CEO of a major retail chain I would already be planning for damage control post holidays."

The day after Thanksgiving is dubbed "Black Friday" because it traditionally marked the day when retailers finally move out of the red, indicating losses, and into the black, representing profits.

The day has evolved into more of a symbolic kickoff to four weeks of gift-buying leading up to Christmas, marked by steep discounts and "doorbuster deals" on some of the hottest items. The year-end holiday season is critical to the retail industry because it can account for as much as 50 percent of merchants' profits and sales.

But given the tepid sales forecasts for holiday 2007 - the National Retail Federation expects total holiday sales to grow 4 percent, to $475 billion, versus a 4.6 percent increase in 2006 - many analysts say they wouldn't be surprised if retailers are already working on a recovery plan for early 2008.

They should be if they're not, said Finley, who is now managing director with turnaround consulting firm Alvarez & Marsal.

"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," Finley said.

To his point, several retailers recently ratcheted down their holiday sales expectations. Among them, Wal-Mart (Charts, Fortune 500), Macy's (Charts, Fortune 500) and J.C. Penney (Charts, Fortune 500) last week warned of weaker holiday sales and a tighter consumer spending environment in 2008.

Finley fears that no retail segment is particularly well-positioned for holiday sales. "Apparel sellers will suffer because of a lack of big fashion trends this year. Shoe sellers are having one of their worst years for the same reason," he said.

Parents are nervous about buying toys, typically one of the biggest holiday purchases, after millions of them were recalled this year over faulty designs and lead paint hazards.

Department stores will also struggle to keep sales going over the next few weeks. Although luxury sellers have remained insulated from the economic pressures affecting low-to-mid income households, Finley said high-end consumers are going to pull back.

"Often when there is a credit crunch or a downturn in the stock market, high-end consumers are not affected as much," he said. "However, whenever the big financial institutions such as Citigroup and Morgan Stanley take a hit, it resonates with the top-end investor."

If holiday sales grow only 2 to 3 percent, Finley is betting on a retail industry shakeout in 2008. "There are too many stores out there. Expect more consolidation."

Extra shopping week a boon?

Industry expert Stevan Buxbaum said retailers could catch a break 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.

Many chains, including Kohl's (Charts, Fortune 500) and J.C. Penney, are opening their stores as early as 4 a.m. this Black Friday.

"Retailers have to work with what they've got," Buxbaum said. "If people are not splurging on gifts this year, then you have to chase whatever sales you can get with big discounts. Profits will take a hit but retailers have to make sure that they keep shoppers coming back to their stores through the season. You simply can't be complacent this year."

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.

High-end retailers will struggle, especially names such as Coach (Charts) that represent "aspirational" luxury for mid-income consumers, he said.

Come January, 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."

If holiday sales are really terrible, some chains could even think about spinning off their smaller units, like DEMO for Pacific Sunwear or Arden B for Wet Seal, he said.

Even though retailers are bracing for a very challenging holiday period, Ernst & Young's retail analyst Jay McIntosh said the season overall is still vital for the industry.

"You can't completely ignore the holiday period. 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."

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