September 24, 2008 / 10:29 PM / 9 years ago

Holiday sales lose luster for inundated consumers

By Nicole Maestri - Analysis

NEW YORK (Reuters) - The Christmas trees are lined up at Macy’s (M.N), the ornaments are on sale. The retailer is promoting big discounts and it is not even October.

Not only does Christmas appear to be coming ever earlier, but it looks like the holiday has continued uninterrupted since late 2007 as U.S. retailers flood shoppers with e-mails and flyers for sales events.

Over-use of special deals has diluted their effectiveness, taking a crucial tool away from retailers as they head into what could be the most difficult holiday season since 1991, marketing experts say.

“It’s the definition of insanity,” said Anne Bologna, chief executive of advertising agency Toy New York, referring to retailers’ year-round reliance on promotions to generate sales. “It’s a classic case of commoditizing what you do.”

In the most recent spate of deals, an e-mail from Macy’s upscale Bloomingdale’s department store chain on Tuesday touted 20 percent off for three days only, while one from AnnTaylor’s ANN.N Loft division offered 25 percent of certain merchandise, and Gap Inc.’s (GPS.N) Old Navy chain offered $10 off a $75 purchase until September 25.

“We are fond of saying that in a downturn, all retailers become discount retailers,” said Scott Krugman, spokesman for the National Retail Federation.

DEALS NOT ENOUGH

But advertising executives and analysts say retailers are facing shoppers who are focused on spending less, buying functional or meaningful gifts, and patronizing stores that show empathy with their customers.

“It’s going to be a more practical season than we’ve ever seen,” said Ann Beriault of advertising firm Young & Laramore.

The day after Thanksgiving, known by retailers as “Black Friday” because it historically was the day when shoppers can turn retailers’ bottom lines to black from red, has traditionally marked the start of the holiday season with eye-popping sales.

But last year, Wal-Mart Stores Inc (WMT.N) cut prices on hot toys at the end of September, and retailers posted online deals on Thanksgiving day to kick off the holiday shopping season even before the turkey was carved.

After Thanksgiving, retailers like Toys “R” Us, J.C. Penney Co Inc (JCP.N) and Gap Inc (GPS.N) promoted Black Friday-type limited-time sales into December.

Despite the deluge of special offers, 2007 holiday sales rose a less-than-expected 3 percent, the worst sales performance in five years.

Sales and specials continued into 2008, becoming a routine tactic by retailers trying to entice consumers into buying more than the most essential goods and services.

But consumer spending remains weak, due to higher food and fuel prices, mounting job losses and a deteriorating U.S. housing market.

DEMANDING DISCOUNTS

    Analysts expect the upcoming Black Friday weekend to be marked by a frenzy of extreme deals and discounts.

    But Aliza Freud, founder of women’s insights marketing firm SheSpeaks, said shoppers are craving more from retailers.

    “It’s not just about the ‘Come in and get $10 off’ because there are going to be tons of those offers out there and women know that,” she said. “People are trying to ... figure out how they can stretch their dollars to create an experience as opposed to buying stuff.”

    That could mean, for example, customers focusing purchases around a holiday meal or gathering and paring back on the number of gifts they buy.

    In a recent SheSpeaks poll, almost 50 percent of respondents said they would spend less this holiday, up from nearly 30 percent who answered the same way last year.

    Freud said the climate has emboldened shoppers.

    “They feel like pricing is actually negotiable and when they go in to a retailer, they can negotiate the price.”

    Advertising executives and analysts say shoppers will also gravitate toward stores that convey a sense that they feel consumers’ pain. They cited as an example Wal-Mart’s current ad campaign that emphasizes how saving money in its stores can help shoppers “live better”.

    “There are so many me-too retailers,” Young & Laramore’s Beriault said. “How do you make your experience that much better? It’s trying to figure out that mix of practicality and dreaming that people want during the holidays.”

    Reporting by Nicole Maestri

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