Holiday Price Wars Begin Because “Price Matters”

October 26, 2011 05:28

Even if spending does not drop, expect profits to drop on reduced markups and increased discounts.

By Mike “Mish” Shedlock

In yet another indication of a weak holiday shopping season, stores aim to outdo each other as shoppers focus on getting the best deals.

This shopping season is shaping up into two key words “Price Matters

A week before Halloween and two full months before Christmas, stores are desperately trying to outdo each other in hopes of drawing in customers worn down by the economy.

Wal-Mart, the biggest store in the nation, joined the price wars Monday by announcing that it would give gift cards to shoppers if they buy something there and find it somewhere else cheaper.

Staples and Bed Bath & Beyond have already said they will match the lowest prices of and other big Internet retailers. Sears is going a step further, offering to beat a competitor’s best price by 10 percent.

In a recent poll of 1,000 shoppers by America’s Research Group, 78 percent said they were more driven by sales than they were a year ago. During the financial meltdown in 2008, that figure was only 68 percent.

Duncan MacNaughton, chief merchandising officer for Wal-Mart’s U.S. stores, told reporters Monday that he has noticed “much more promotional intensity and gimmicks” among competitors.

The holiday price wars mark an acceleration of a trend that has already swept the retail industry. Lowe’s, the nation’s No. 2 home improvement store, said in August it was starting to focus on everyday low prices for items that customers can easily comparison-shop at rivals like Home Depot and Sears.

64 percent of shoppers polled said that it would take discounts between 30 percent to 50 percent to get them to spend, up from 54 percent last year, according to a recent Citi Investment Research & Analysis survey of a little more than 1,000 customers. Customers looking for 60 percent off as a big motivator to spend increased to 10 percent from 8 percent last year, the survey showed.

“The reality is consumers are targeted. They’re well informed, and they’ve searched the Internet for price information,” said Bill Martin, co-founder of ShopperTrak, which expects foot traffic to drop 2.2 percent during the holiday season compared with a year ago.

It is extremely rare to see shopping estimates lower than last year. That does not mean lower traffic and lower sales are written in stone, but that is the way consumer sentiment numbers and shipping stats are shaping up.

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Even if spending does not drop, expect profits to drop on reduced markups and increased discounts.

Mike “Mish” Shedlock
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