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Shoppers Want 70% Off—and Something Fuzzy

Wednesday, 3 Dec 2008 | 9:42 AM ET

More shoppers hit the stores over the Thanksgiving weekend than last year and they spent more, according to the early numbers, but the unseasonably high discounts took a bite out of margins and set a dismal tone for the season.

Source: kandyjaxx

“Everyone keeps saying ‘It was better than expected,’” said Howard Davidowitz, chairman of the retail-consulting and investment-banking firm Davidowitz & Associates, referring to the weekend sales numbers. “The truth is, the weekend was very poor for retailers.”

Shopper traffic was up 17 percent over the four-day weekend, according to the National Retail Federation, and shoppers spent an average of $372.57, up 7.2 percent from last year.

Sales may have been up a couple percent but when you look at how steep the discounts were, the math just doesn’t add up for retailers.

“What happened is, 70-percent off was the new 50-percent off,” Davidowitz said. “The markdowns were much deeper, more dramatic.”

Not only were the discounts steeper than last year at this time, but they got steeper just over the course of the weekend!

Tis' the Season:

The average price of a Blu-ray disc player dropped 18 percent to $233 by Monday, compared with $285 last Wednesday, Pricegrabber.com reported. The average price of digital cameras dropped 12 percent to $453 in that timespan.

Retailers don’t usually roll out the 70-percent discounts until well into January, and here they were rolling them out over Black Friday weekend, the unofficial start to the holiday season.

“What made it dramatically different was the destruction of the bottom line,” Davidowitz said.

The biggest discount categories this weekend were apparel, electronics and toys, Davidowitz said, because those are categories that drive foot traffic.

And, in the same way that consumers gravitate toward comfort foods like macaroni and cheese and hot soup during recessions, they also, apparently, gravitate toward comfort clothing and other items.

“We’re seeing … a customer who’s going toward a little bit more comfort,” said Mark McWeeny, executive vice president at off-price retailer SmartBargains.com, noting stronger-than-usual demand for comfort items across all price points—from flannel sheets to cashmere sweaters.

Pricegrabber.com added that Ugg boots, a sweater from AnnTaylorand men’s slippers were among its top-selling items over the weekend. There was also increased demand for puzzles and board games as more customers opt to stay home than spend the money on taking the whole family out.

UGG Boots
Source: Flickr
UGG Boots

Retailers are going to have to hunker down, too, because analysts say it's only going to get worse.

“You’ve got fewer days than last year. Sales at this moment are terrible. The stores are empty. What do you do for an encore? You go lower!” Davidowitz exclaimed.

But it won’t necessarily mean discounts higher than 70-percent off, said Marshal Cohen, chief industry analyst at the NPD Group.

From this point on, Cohen says, you’re going to see sales get steeper as the week goes on — to grab that weekend traffic — and more bundling. Things like buy one, get one free. Though, with big-ticket items, where it doesn’t make sense to give one away free, the lure will be add-ons. Maybe if you buy a computer, you’ll get a printer free, Cohen explains.

Both Davidowitz and Cohen agree that the industry’s ills aren’t going to end with this season. Rather, they’re just beginning.

Expect this 70-percent-off trend to continue for the next few years, Cohen said.

That is, for the retailers left standing.

"These markdowns that you're seeing will result in the elimination of many retailers," Davidowitz said.

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Questions? Comments? retaildetail@cnbc.com

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