Shoppers Flock to Stores But with Tighter Wallets

Shoppers turned up early for holiday sales at U.S. stores Friday, but the annual pilgrimage appeared thinner this year and many consumers vowed to keep spending down due to a shrinking economy.

Retailers from Wal-Mart Stores to Macy's , Kohl's and Best Buy opened their doors in the early hours of "Black Friday,'' offering steep discounts to scores of shoppers who waited in line.

"The recession is kicking in,'' said Tammy Williams, 36, as she waited for a 4 a.m. ET opening at a Kohl's in West Paterson, New Jersey. "I'm just looking for a bargain, anything to save a couple of dollars. I'll save the rest for food shopping.''

Natalie Diaz, 32, plans to spend about one-half of the $2000 she shelled out last year for Christmas gifts, but said she would not cut down on presents for her twins.

"They won't get it,'' she said of her children, while shopping at a J.C. Penney in Jersey City on Friday. ''Santa does not have a recession.''

The holiday weekend will test the strength of consumer sentiment, a main driver of the U.S. economy, as the country faces its worst financial crisis since the Great Depression.

George Widman / AP

Many retailers fear a deep recession and mounting job losses will cost them dearly during the period that brings in up to 40 percent of annual sales. Experts predict this could be the worst holiday shopping season since the early 1990s.

Most stores offer major discounts on Black Friday, the day after the U.S. Thanksgiving holiday, hoping to ring in billions of dollars through year's end. Some chains opened during the holiday on Thursday to capture business even earlier.

Marshal Cohen, chief retail analyst with NPD Group, said that early store traffic appeared about 25 percent lighter than a year ago. People seemed to be more selective about the shops they visited and weren't staying inside stores as long.

Traffic levels and the amount of time spent in stores will be key indicators for retail chains over the next few weeks precisely because the price markdowns are so deep, Cohen said.

"If I'm selling something at 75 percent off, I've got to sell twice as much merchandise to make up that difference,'' he said. "If you don't get a good Black Friday start, you've got an awful lot of ground to make up.''

The Standard & Poor's Retail Index slipped 1.7 percent on Friday, led by a 5.4 percent decline for Liz Claiborne , and a 3.7 percent drop for Dillard's .

The retail index is down 35 percent so far this year, compared with a nearly 40 percent drop for the S&P 500 index.

Wal-Mart Prospers

Many stores started offering steep discounts on everything from clothes to electronics weeks in advance of Thanksgiving. Discounters like Wal-Mart have prospered in recent months as more consumers seek out their low prices.

But mid-tier retailers like department store operator Macy's and specialty chains such as AnnTaylor Stores are battling to retain loyal customers and eke out a profit as rivals cut prices up to 40 percent to 50 percent.

Macy's Chief Executive Terry Lundgren said the company has worked closely with its vendors to craft discounts without cutting too deeply into its own margins.

"One of the great advantages of being the largest customer to practically everyone you do business with is sharing in margin with our vendors and suppliers,'' Lundgren told Reuters in an interview.

Sales of clothing and big-ticket luxury items have been hit particularly hard in recent months as consumers cut back on everything but the most basic items. But electronics sellers and toy stores hope their goods will remain on the must-have lists of gift givers.

"The last thing parents cut back is Christmas presents for their children,'' Toys "R'' Us CEO Jerry Storch said. "Parents are cutting back on luxuries for themselves ... large automobiles or buying a new house or a big vacation.''

Retailers also face unwelcome competition from U.S. stores that declared bankruptcy before the holiday and are now selling off merchandise at fire-sale prices, such as Circuit City and Mervyns.

Retail sales at U.S. stores open at least a year could fall 2.2 percent in November, compared with 4 percent growth last year, based on analyst forecasts compiled by Thomson Reuters.

Excluding expectations for growth at Wal-Mart, the anticipated decline is even steeper at 6.6 percent.

Nearly 45 percent of consumers plan to shop during the Black Friday weekend, according to a survey by the International Council of Shopping Centers.

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