Retailers boost discounts in attempt to stimulate sales

Rachel Katz

Monday, Dec. 6, 2004 | 9:16 a.m.

J.C. Penney Co. offered discounts of as much as 50 percent on women's dresses this past weekend to get shoppers like Vella Moss to spend more on themselves as well as boost their gift purchases.

"These are good prices," said Moss, 44, who plans to spend about $1,000 on gifts this year, as she stood in the J.C. Penney store in the North Riverside mall near the Chicago suburb of Oak Park, Ill. "I'm also going to spend a couple hundred on myself."

U.S. retailers including Federated Department Stores Inc. and Sears, Roebuck & Co. stepped up discounts in the second weekend of the holiday season after posting disappointing sales gains in November. Wal-Mart Stores Inc., the world's biggest merchant, joined in the price-cutting as it kicked off a new advertising campaign on Friday after comparable sales rose 0.7 percent last month.

"They're worried, but they're not panicking to the point of lowering prices indiscriminately," said Kurt Barnard, president of Retail Forecasting LLC in Upper Montclair, N.J. "They are lowering prices on the things that are just sitting there and nobody seems to want." Retailers are willing to wait until later in the season to mark down some items because they have kept inventory low, he said.

Sears cut prices on most items 10 percent from 7 a.m. to 10 a.m. on Saturday. Kohl's Corp. discounted fine jewelry by 70 percent and kitchen appliances by as much as 40 percent from 6 a.m. to noon. Bloomingdale's, owned by Federated, reduced prices on women's cashmere sweaters by 20 percent and J.C. Penney took an additional 10 percent off clearance items from 7 a.m. to noon.

"We're going to be aggressive and competitive in every way in price and hours going forward," said Tim Lyons, a J.C. Penney spokesman. He declined to comment on whether the company was revising its promotion plans.

Circuit City Stores Inc., the No. 2 U.S. electronics chain, said sales in the third quarter ended Nov. 30 rose 3.8 percent, less than analysts expected. Chief Executive Alan McCollough, in a statement today, blamed "a strategic decision to be less promotional" in music and movies than a year earlier.

Merchants who hold off on moderate discounts now may lose shoppers and face steeper discounts toward the end of the season, said Michael Niemira, chief economist at the New York-based International Council of Shopping Centers.

"Waiting doesn't get you too far if you're going to be forced to do it," he said in an interview. Discounting too soon may result in lost revenue, he said. "You don't want to give away the store."

Sales at U.S. chain stores open at least a year rose 1.7 percent in November, less than an initial forecast for a gain of 3 percent to 4 percent, according to the trade organization ICSC. Sales at companies such as Sears and J.C. Penney that offered early-morning discounts the weekend after Thanksgiving rose more than analysts expected.

MasterCard International said transaction volume increased 16 percent over the weekend from a year earlier.

At the Albany Mall in Albany, Ga., Sonya Haveron had budgeted $200 instead of the $500 she spent last year. She is working part-time for United Parcel Service Inc. after losing her job as a secretary at a tire retailing and repair company last year.

"I cut out some people from my list this year because I don't have very much money," said Haveron, 24, who planned to shop at Target Corp., Toys 'R' Us Inc. and Limited Brands' Bath & Body Works. "I try to find bargains. My son won't know whether you bought it at a garage sale or dollar store."

High gasoline prices and sluggish employment gains have stalled some consumer spending, said analysts including Niemira. U.S. employers added 112,000 workers in November, fewer than the lowest forecast. The average price for a gallon of regular-grade gasoline was $1.95 in the week ended Nov. 29, 31 percent higher than a year earlier, according to a Energy Department report.

Borders Group Inc., the No. 2 U.S. bookstore chain, slashed prices by 50 percent on books including "My Life" by former U.S. President Bill Clinton and "Tuesdays with Morrie" by Mitch Albom. A table of the books was just inside the entrance of the chain's Greensboro, N.C., store as part of the promotion that ends today.

The price of jeans was cut to $29.50 from $49.50 at the Express chain of Limited, the No. 2 U.S. clothing retailer. Its semi-annual pants sale started Friday, ahead of schedule, after Express's same-store sales dropped 22 percent in November, Limited spokeswoman Amie Preston said Thursday in a recorded message.

Gap Inc., the San Francisco-based owner of the Gap, Banana Republic and Old Navy chains, reported a 4 percent decline in November same-store sales last week. Analysts had expected an increase.

At the North Riverside mall near Oak Park, Ill., Gap slashed prices on men's and women's ribbed sweaters by 25 percent more than a week ago. That was enough to attract Lisa Hastings.

"I only come when there is a sale," said Hastings, a 41-year-old mother of four, while examining one of the $29.50 sweaters as a gift for her husband.

The company will be "managing our holiday promotions to offer compelling value," Sabrina Simmons, senior vice president, said in a statement.

Wal-Mart may have lost sales the weekend after Thanksgiving because it offered fewer discounts, analysts including Emme Kozloff at Sanford C. Bernstein said.

"They ratcheted down the expectations, but they're not going to cede the rest of the holiday season," said Narendra Mulani, a retail partner at Accenture Ltd.

Shares of Bentonville, Ark.-based Wal-Mart fell 14 cents to $52.79 at 9:42 a.m. in New York Stock Exchange composite trading. Plano, Texas-based J.C. Penney rose 36 cents to $39.10 and Sears, based in Hoffman Estates, Illinois, rose $1.27 to $53.57.

Wal-Mart's rivals may have been better able to predict what types of items Wal-Mart would discount the day after Thanksgiving and offered their own, spokeswoman Sharon Weber said. Wal-Mart sold a DVD player for $27.87, compared with $17.99 players at Best Buy Co., the largest U.S. electronics retailer and Circuit City.

Discounted items featured in new advertisements include a private-brand portable DVD player for $149.87, marked down from $179.87, and Fisher-Price Sesame Street Elmo for $16.88, compared with an earlier price of $24.47.

Other items highlighted in the ads had prices that were already lower than those of competitors, so Wal-Mart didn't have to cut them further, spokesman Gus Whitcomb said. The price cuts are permanent, he said.

Without highlighting low prices, Wal-Mart might risk losing customers beyond the holiday season, said Patricia Edwards, who helps manage about $5.3 billion at Wentworth, Hauser & Violich in Seattle, including Wal-Mart shares.

"Once you teach Wal-Mart consumers that they can go elsewhere and find a comparable deal, Wal-Mart might regret it," Edwards said. "It may have taught their consumer that they're not the low-cost provider."

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