UPDATE 2-U.S. retailers slow discounts after 'Black Friday'

Sat Nov 27, 2010 6:12pm EST

* Analysts say game plan is good, especially for margins

* ShopperTrak reports tepid sales, 2.2 pct higher traffic

* Saturday's crowds shrink, shoppers question deals (Adds ShopperTrak data, online detail, new analyst quotes)

By Dhanya Skariachan and Alexandria Sage

NEW YORK/SAN FRANCISCO, Nov 27 (Reuters) - U.S. retailers scaled back discounts and shoppers were less frenzied on Saturday, a day after the mad rush for "Black Friday" bargains kicked off the holiday shopping season.

Despite the annual chaos on Black Friday, sales volume the day after Thanksgiving proved tepid as many shoppers openedtheir wallets only for deep discounts, according to ShopperTrak, which monitors retail traffic.

U.S. retail sales on Friday rose a mere 0.3 percent from the same period last year, while traffic rose 2.2 percent, ShopperTrak said. Heavily discounted merchandise may increase volume, but negatively skews sales data while cutting into profit margins.

The focus on discounts this weekend, together with slow traffic trends Saturday, brings up a key question -- can retailers sustain sales for the season merely through deals?

"They're struggling to come up with new unique ways to catch the eyes of the customers," said Deanna Bowman, browsing at a Macy's (M.N) in downtown San Francisco.

Despite signs that consumers, especially those at the upper end of the economic scale, are more confident, shoppers are still cautious, analysts said.

"Price is still a big determinant of the purchase," said Telsey Advisory Group analyst Joseph Feldman. "People obviously want items and when it hits the right price they will buy it. ... They will wait longer if it's not."

Still, Saturday's subsequent ease-up on discounts makes sense considering the strong traffic kick-off to the busiest selling season of the year. Retailers have almost a month to sell their goods before Christmas Day, analysts said. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a graphic on Black Friday traffic and holiday sales:

http:/r.reuters.com/dyk66q

Reuters Insider reports: [ID:nRTV166827 [ID:nRTV161989]

For other holiday retail stories [ID:nUSHOLIDAY]

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"For the retailer, the holiday season is more of a marathon than a sprint," Moody's analyst Scott Tuhy told Reuters. "We still have 28 shopping days to Christmas."

"As retailers seek to keep momentum going, obviously you can't do yesterday (Black Friday) day after day for 28 days."

Shoppers also enjoyed retail bargains earlier in the season and headed online this weekend for deals, factors that may have cut into sales at brick-and-mortar stores.

U.S. online sales were up 33 percent on Thanksgiving this year, according to IBM Coremetrics, signaling irresistible promotions in advance of Cyber Monday, the kick-off to the online holiday selling season.

UPHILL BATTLE

Crowds were light at a Gap (GPS.N) store on New York's Upper West Side as the retailer offered smaller discounts. Shoppers were also scarce at nearby Zales ZLC.N, Talbots TLB.N and Chicos (CHS.N) stores.

Shoppers appeared to recognize that advertised bargains weren't necessarily the best-ever and that retailers had an uphill battle keeping deals fresh.

"They're trying to build it up like its different from last year," said Jackie Leno, who was shopping for boots.

Despite the tepid results from ShopperTrak, retail experts have forecast this to be the best holiday season in three years, with the economy showing some signs of improving despite stubbornly high unemployment.

On Saturday, NPD Group said the conversion rate, or shoppers who actually purchased, rose 4 percent over last year.

"People that went to shop, bought," said NPD's Marshal Cohen, adding that "the retailers did a better job of luring consumers in with big deals and great savings."

Consumer spending makes up about 70 percent of the U.S. economy, making "Black Friday" and the holiday shopping season a closely watched proxy for the state of the economy as a whole. [ID:nN2529414]

The National Retail Federation has said up to 138 million people could hit stores this weekend. The industry trade group forecast a 2.3 percent increase in sales during November and December, up from a 0.4 percent rise in 2009. Others have forecast even greater sales gains for the industry this year.

RETAIL SHARES RALLY

Retail stocks have rallied on investor hopes for a better-than-expected holiday season. The Standard & Poor's Retail index .RLX closed at its highest level in over three years on Wednesday but was off 0.36 percent on Friday.

J.C. Penney Co (JCP.N) Chief Executive Mike Ullman said on Saturday the season had started strong, echoing comments from heads of top retailers such as electronics chain Best Buy Co (BBY.N) and toy seller Toys R Us [TOY.UL]. [ID:nN26123388]

At the same time, a slowed pace of discounts helps margins. "If sales are building up (slowly) but it's selling at better margins, that's fine. That's better than having a lot of sales and having unusually high discounts to get those sales," Tuhy said.

Shopper Krisztina Ilosfalvy said she was put off by the price tag games played by some retailers. A scarf she bought at Macy's for about $20 was originally priced over double that.

"But why was it $42 to begin with?" she asked. "I didn't feel like it was a steal." (Additional reporting by Jon Lentz and Phil Wahba; Editing by Vicki Allen and Todd Eastham)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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