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Retailers Pin Hopes on Gift Cards, Strong Post-Holiday Spending

The nation's retailers ushered in the post-Christmas shopping season on Tuesday by slashing prices even more on holiday items and stocking up on fresh merchandise.

With the 2006 pre-Christmas season turning out to be challenging, the nation's merchants were hoping that shoppers, armed with gift cards, would spend freely, snapping up discounted items as well as picking up full-priced merchandise, to boost business in December and in the fourth-quarter.

Federated Department Stores's Macy's opened its doors at 7 a.m. and offered discounts ranging from 50% to 75%. Toys "R" Us offered 50% discounts on selected toys. The toy seller is also showcasing hot toys from 2007 in its stores.

Merchants "are going to use all 31 days in December," said Marshal Cohen, chief analyst at NPD Group, a market research company.

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The post-Christmas season has become more important with the increasing popularity of gift cards. Gift card sales are only recorded on retailers' balance sheet when cards are redeemed.

According to BigResearch, which conducted a poll for the National Retail Federation, consumers are expected to spend a total of $24.81 billion on gift cards this holiday season, up from $18.48 billion last year.

In 2005, the week ended Saturday Dec. 31 accounted for 15.6% of holiday sales, compared with 10.3% in the corresponding period in 2004.

A poll of 1,200 shoppers conducted by Kurt Salmon Associates from Nov. 30 to Dec. 5 found that half of respondents said they plan to take advantage of the post-holiday sales.

Showing Something New

Many retailers held back some winter merchandise so that they could show something new after Christmas, hoping that shoppers armed with gift cards would pay full price for items such as coats and sweaters -- two categories that have suffered through an unusually warm December.

Planalytics, which tracks weather-related spending, predicted a gradual trend toward more seasonable winter weather through the first half of January.

Holiday sales from the day after Thanksgiving through Christmas Eve grew about 3 percent, well behind last year's 5.2 percent growth rate, according to SpendingPulse, the retail data service provider for MasterCard Advisors.

Holiday season sales rose 6.6% without adjusting for an extra sales day between Thanksgiving and Christmas, MasterCard's SpendingPulse said.

"If MasterCard is calling 6.6% (growth) disappointing, we'll take disappointing every year," said Scott Krugman, spokesman for the National Retail Federation trade group, which expects holiday sales growth of about 5%.

Disappointment in Apparel

Final December sales figures won't be released until next week, but apparel stores appeared to be among the biggest disappointments in the vital Thanksgiving-to-Christmas holiday season, and some chains have already slashed prices in a last-ditch effort to tempt shoppers.

"From our checks days before Christmas, women's specialty retailers in most cases threw in the towel early," CIBC World Markets analyst Roxanne Meyer wrote in a note to clients on Tuesday.

That could pressure fourth-quarter profits. December is the biggest earnings driver in the period, which for most retailers ends in January.

CIBC's Meyer said apparel retailer Talbots began taking post-Christmas markdowns as early as December 18. Another clothing chain, Christopher & Banks, said last week that fourth-quarter earnings would be lower than Wall Street analysts had expected.

Analysts said demand for consumer electronics may have fizzled out last weekend after a strong start that was driven by demand for discounted flat-panel televisions.

"Even typical holiday shopping procrastinators seemed fewer and further between, with parking lots of malls and strip malls relatively easy to navigate (as) opposed to typical jams," Kaufman Bros. analyst SooAnn Roberts wrote in a research note.

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