Black Friday retailers face a shaky market

Wharton School marketing professor Stephen J. Hoch could hardly contain his scorn when asked his opinion of the retail landscape heading into this holiday shopping season.

Another expert might have mentioned the recent plunge in consumer sentiment as a foreboding sign for merchants. Or noted how figures on the decline in the personal savings of Americans, feeling stifled by unemployment and stagnant wages, indicate they are, again, spending money they'd rather not touch.

Hoch, however, aimed for the Black Friday marketing jugular.

"This is, I think, kind of pathetic, this sort of 'Open earlier, earlier, earlier' deal," he said of the frenzy by some corporate retailers (Macy's, Kohl's, and Target, among them) to open for the first time at 12:01 a.m. Friday. (Some, like Toys R Us, were open on Thanksgiving.)

"I mean, it's almost like they're just doing it for the PR value, if nothing else," said Hoch, an industry watcher. "Clearly, it's kind of like an arms race."

Despite the appearance of consumer joy cultivated by the publicity for earlier-than-ever openings, the mad dash is a sideshow to a distressed economy that, observers say, will make yet another holiday season an exercise in restraint for shoppers and patience for retailers.

A full three years after the financial system's meltdown in September 2008, Americans seem no more ready or able to spend the way they did the decade before, when the holidays were a cash-and-credit cow for retail corporations and their shareholders.

"People are spending more money, but they're getting less per dollar, and they're not very cheerful because consumer sentiment is at recession levels," said IHS Global Insight economist Chris Christopher, who specializes in retailing and the consumer economy.

Christopher's firm predicts holiday sales through November and December will increase 4.2 percent this year over last year, excluding automobiles, gasoline, food services, and online sales. The National Retail Federation expects holiday sales to grow 2.8 percent, to $465.6 billion.

But though the projected increase is a "good number," Christopher warned that about half the growth was expected to come from higher prices - not from consumers buying more.

In recent months, data have shown that after a period of self-imposed austerity, Americans once again are dipping into savings, likely as a way of making up for the fact that income after taxes and adjusted for inflation has fallen. Income crept up 0.3 percent in October, data released Wednesday showed, after three months in negative territory, according to IHS Global Insight.

But consumers' outlook has worsened as global fiscal turmoil and unemployment weigh on their minds, wallets, and bank accounts.

"In order for people to make ends meet or to buy the necessities, they have to lower their savings rate," Christopher said. And they have been doing so steadily since the summer.

In June, the savings rate calculated by the U.S. Commerce Department - the amount of each paycheck that is stashed away - was 5.3 percent. It has fallen monthly since then, reaching 3.6 percent in September.

"People are noticing that prices are higher, they have to spend more, but they're getting less, and they're not very happy about it," Christopher said. "That's pushing down consumer confidence."

Retailers have become as cautious about their cash as the consumers they struggle to court. Holiday retail sales fell in 2008 and 2009 before increasing last year. Merchants lost considerable ground through the turmoil.

One reason stores amped up the marketing around unprecedented Black Friday opening times was to seek an edge when consumption is anything but freewheeling, Hoch and Christopher said.

Chains that did not go bankrupt during the last three years have sharply curtailed their operations to match the decline in consumer spending.

As recently as October, Gap Inc. disclosed to regulators that it planned to reduce its Gap store count by 34 percent by 2013's end, compared to its 2007 store count. It also plans to shrink the square footage of its Old Navy stores.

"A bunch of people realize we've got to right-size the ship," said Hoch.

Companies also are fiercely controlling the amount of merchandise they order from factories. That guards against costly markdowns of unsold merchandise, while also keeping less cash tied up in inventory purchases.

"It's a dog-eat-dog world," said Christopher, particularly among retailers trying to boost sales at stores, given how popular online sales have become. "Each store is opening up earlier. . . . Compared to last year, [competition] is a lot rougher."

Weighing on retailers' minds, too, is deep discounting via online deals such as Groupon. According to Hoch, there is more pressure than ever for store-based retailers to appear competitive.

"This Black Friday thing is just another example of this," Hoch said. "People are truly feeling poorer, and many people really cash-constrained."

For their part, retailers have touted their early Black Friday openings as gracious overtures to their customers, rather than maneuvers to boost anemic spending.

Kmart has been open on Thanksgiving for two decades only because its customers wanted to be able to rush in for batteries or other everyday household items, said Tom Aiello, a spokesman for corporate parent Sears Holdings Co.

But when the company opened its Sears stores on Thanksgiving last year for the first time in its 125-year history, customers were none too thrilled, Aiello said, and the practice was halted.

Customer feedback, according to Aiello, went something like this: "'We liked the opportunity for the deals, but didn't necessarily like the fact that I came out on Thanksgiving.' "

At Macy's, spokeswoman Deanna Williams said the department-store chain's decision to open at midnight Thanksgiving for the first time was a response to the wants and needs of its customers.

"They wanted more flexibility in shopping and their shopping hours," Williams said. "And we felt that this was a great opportunity to take at this time. Our feeling behind our business is customers first."

When asked her thoughts on Hoch's characterization of the early openings as an arms race, Williams again spoke of Macy's customers, before adding: "I won't respond to that."

Ultimately, Hoch was sympathetic to the plight of the very retail industry he had readily skewered. Times are tough. And once one retailer ups the ante, it is difficult for others to step aside.

"Unfortunately," he said, "if you're in the game, you have to play this game."