Can Retailers Get Consumers into the Christmas Spirit?

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Michael Nagle / Getty

Consumers walk around the Manhattan Mall in New York City.

The jack-o-lanterns are still on the stoop, but already we're seeing prices for holiday ornaments slashed in half at J.C. Penney and pricey toys at Wal-Mart marked down to $10 a pop. Home Depot skipped Halloween altogether, piling up Christmas trees by early October.

Retailers always engage in some Christmas calculus to get you to loosen your wallet during the holiday season, but this year it feels a little more desperate. Stores are starting their promotions earlier in the hopes of luring in customers quickly to spend money — before they're tapped out or the markdowns get any steeper. Black Friday, the Friday after Thanksgiving, is the traditional kick-off of the holiday shopping frenzy, and it will still be the biggest sales generator of the season. But don't sweat it if you can't shop that day. "We will start to get Black Friday level deals every week," says Brad Olson, owner of, an online bargain site.

One reason for the earlier discounts: a shorter window to shop. Black Friday falls on November 28th this year, the latest date possible. That means five fewer shopping days (and one less weekend) between Thanksgiving and Christmas than last year. "Stores are trying to grab their share of consumers earlier because they don't think there will be that much to go around," says Stacy Janiak, vice chairman and U.S. retail leader at Deloitte LLP. "If they can get people to shop now it will be better than waiting."

For many retailers, holiday sales account for as much as 40% of their annual revenue and up to 80% of their profits — hence the name Black Friday or the day when stores traditionally go from being "in the red" to "in the black." That's an overstatement, but with holiday forecasts predicting flat to 1% sales growth — according to Bain & Co and Archstone Consulting respectively — retailers are anticipating one of the toughest holiday shopping periods in decades. Consumers cut back spending in the July to September quarter by the largest amount in 28 years as they grappled with a tanking economy, tightening credit and looming lay-offs. "It's going to take excruciating deals to get people into the stores this year," says Olson. "Stores need to walk the line between big deals and still making money."

The key for retailers will be managing inventory smartly. The economy has been braking for months, so many stores have already adjusted inventories accordingly. "Don't forget, this slowdown started hitting a lot of retailers back in December of last year," says Darrell Rigby, head of Bain & Company's global retail sales practice. "It might be challenging, but it's not completely surprising." Still, no one predicted a Wall Street implosion right before Santa Claus' arrival.

So far, Sears, which has been struggling, is leading the promotional pack, announcing 450 door busters, or specially priced items, from 5 a.m . to 11 a.m. on Black Friday. Shoppers will find deep discounts in electronics, like a Sony Blu-ray Disc player for $179.99, down from $300, and a 46-in. Sharp LCD HDTV for $899.99, reduced from $1,400. Although Wal-Mart already marked down 10 toys to $10, from butterfly-winged Barbie Mariposa to Fur Real Newborn Animals, its full Black Friday prices won't be announced until November 24.

The pre-Thanksgiving maneuvering is getting interesting. To counter Wal-Mart, the much smaller KB Toys slashed prices to $10 or less on more than 200 items. Best Buy is staging an essay contest: applicants vie to describe how important a family ritual Black Friday shopping is. The 25 winners get a $1,000 gift card, a limo ride and early admittance at 4:30 a.m. to the Black Friday deals. The electronics dealer will provide hot chocolate and outside movie screens showing holiday films to tired customers who wait in overnight lines. And in a drastic move to steal market share from competitors, Kohl's is rolling out 46 new stores just as the holiday shopping season ramps up.

One difference this year is that online retailers are getting in on the Black Friday action. Most stores will let shoppers get Black Friday deals online instead of fighting the crowds., which is, of course, storeless, is sending out promotions in mid-November. In previous years it didn't do anything special for the big day, says Vincent of

Retailers could well be fighting over less. Almost 60% of consumers expect to reduce their spending this Christmas according to Deloitte's annual holiday survey, with 11% reporting that they're still paying off holiday debt from last year. Shoppers indicated they would purchase a lot fewer gifts this year — 21.5 presents on average compared with 23.1 last year. Almost seven in 10 said they intend to change their shopping behavior because of the economy; 81% say they plan to buy more sale items. "Over the last few holiday seasons consumers would buy for themselves too as they shopped, but there will be a pullback on this," says Janiak from Deloitte. The good news: those who received a federal government stimulus check over the summer said that, on average, 20% of that money remains unspent, meaning it's available for holiday shopping.

While analysts say there is no must-have item this Christmas season, they expect discount chains like Wal-Mart to lead the pack. "This is the kind of economy that Sam Walton built Wal-Mart to serve," says Rigby of Bain. Consumer electronics could be a bright spot especially since prices for items such as plasma screen TVs and GPS navigation systems have declined dramatically. And with consumers indicating they're planning on staying home more often-eating in or taking "staycations" instead of vacations — a brand new TV or DVD player might be a good way to indulge while still saving money.

One thing will not change, even with an economic slowdown: people will continue to buy gifts. What's undecided is how many and how much. Says Martin, "You have to do a lot to take away Christmas from the American consumer."