Retailers Gear up for Black Friday

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Justin Sullivan / Getty

Pedestrians pass a sign advertising a sale in San Francisco's Union Square shopping district on Oct. 1, 2009

As unemployment rises to the highest level in more than a quarter-century, retailers are readying for one of the country's biggest shopping days of the year — Black Friday, the day after Thanksgiving, which marks the official start of the Christmas shopping season — which will likely foretell the success or failure of 2009's holiday sales season.

"It's a psychological day for us, to have 1,200 stores and 160,000 people ready for the next 35 days of mayhem," says Mike Vitelli, executive vice president of Best Buy's customer operating groups. "It's the gun start of the race."

Expect to see heavy price-discounting among most retailers this holiday season, but not as aggressive as last year's stunning markdowns. "On average you might see 30% to 50% off, but last year was 75% to 80% off," says Tiffany Co, director of retail at Fitch Ratings. "I don't think we're going to see the kind of panic discounting we saw last year," concurs Richard Jaffe, managing director at Stifel Nicolaus & Co., although he notes that promotions are starting earlier.

Yet it won't be easy for retailers to hold the line as they face a showdown with frugal shoppers. "Inventories are in good shape, but sales may suffer more than we thought as retailers are forced to blink on promotions to drive traffic," says Jeff Black, director at Barclays Capital, who expects holiday sales to be flat with year-ago levels.

The tee-up to this year's Black Friday began early, with many retailers pushing holiday ads while pumpkins and Halloween costumes were still on store shelves. Wal-Mart shot the first volley when it launched a price war last month with online retail giant over books. Walmart slashed the price on 10 of the most anticipated hardcover books to $10 a pop for shoppers who preordered the new releases through its website. When Amazon matched the price a few hours later, Walmart trimmed the price to $9 apiece and then $8.99. Rival Target, not to be left out, has since matched this price on its website.

Walmart didn't stop there. It unveiled plans to sell 100 toys for $10 apiece, roll back prices 20% to 30% on more than 100 other toys and aggressively mark down prices on DVDs, video games and other electronics even before Black Friday. Its push into electronics comes as the sector faces fewer competitors as a result of the demise of Circuit City and Tweeter over the past year. "We will not be beaten on price," said Eduardo Castro-Wright, vice chairman of Walmart Stores Inc., during the company's annual investor meeting last month. Anticipating a crush of early Black Friday shoppers, Walmart has announced that it intends to keep many of its stores open on a 24-hour cycle from Thanksgiving through Black Friday.

All of this has retailers nervously wondering how much they'll need to discount prices this season. "I think virtually every retailer has some level of anxiety about what Walmart is going to do in terms of pricing," says Ken Perkins, president of Retail Metrics, a retail research firm. "They've had so many category killers over the years, and everyone is cognizant of it."

Electronics giant Best Buy isn't taking the challenge sitting down. Vitelli says his company is ready to match prices offered by Walmart and other retailers. "We watch everybody," he says. "We're competitive with them dollar for dollar." Best Buy offers a wider and deeper assortment of electronic products and services than many competitors, Vitelli notes, giving it a leg up.

"If you're shopping for a big-screen TV, then getting the right one at a modest discount is always better than getting the wrong one really cheap," says Victor Cheng, author of the Recession-Proof Business.

The biggest bargains and heaviest competition on Black Friday will be in electronics, where retailers such as Best Buy, Walmart and Target are gearing up to offer "door buster" sales for items ranging from flat-screen TVs, smart phones and home-theater systems to laptops and e-readers. Aside from those predawn door crashers, regular shoppers can expect discounts of up to 60% on certain products on Black Friday, says Vitelli.

In some product categories, such as LCD TVs, retailers will match cut-rate prices offered by their online brethren — Amazon and, for example — even if it means selling at a loss, just to get people into their stores. In other cases, they'll keep prices slightly higher but bundle in accessories and software or waive delivery or setup charges.

Shoppers may not jump at the early discounts. Many consumers are still in a frugal mind frame and can easily recall how retailers slashed prices up to 85% last November and December to unload huge inventories. At that time, shell-shocked retailers, rattled by the collapse of Lehman Brothers, the crisis at AIG and upheaval in the credit markets, pushed the panic button.

"I don't think anyone had ever lived through that big a swing in consumption, from double-digit growth to double-digit declines, in such a rapid period of time," says Stephen Sadove, chairman and chief executive of Saks Inc.

To reduce the risk of another round of panic selling, Saks and other retailers have ordered up to 20% less inventory for this holiday season. "You clearly aren't going to see the kind of discounting that you saw last year," says Sadove, although he doesn't rule out 70%-off sales being held at the end of the season if there's inventory left.