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Are Crazy Retail Deals Good for Business?

Jill_Ann

In recent years, the biggest story of Thanksgiving week has been “Black Friday.”

That’s the unofficial start of the holiday shopping season when crazy people line up at crazy hours to go into stores that open at crazy hours to take advantage of crazy discounts.

Last year, the National Retail Federation estimated that more than 172 million shoppers visited stores and websites over Black Friday weekend with total sales reaching $41 billion – and that was in the midst of the unfolding financial crisis and recession. The 2008 holiday shopping season went on to become one of the weakest in decades.

So, here we are a year later. The S&P 500 is up about 25% in 2009; the economy grew in the third quarter; and by some measures, consumers have shown signs of life. Still, the jobs situation is pretty bleak, so retailers everywhere are curious to see how much people will spend this season. Black Friday is considered a good barometer.

Consumer Nation Holiday Central Edition
Consumer Nation Holiday Central Edition

Even a sports betting Web site (bookmaker.com) has odds on how much consumers will spend on Friday.

Retailers are doing everything in their power to lure consumers into the stores. A recent survey showed that 96% of retailers plan to increase their promotions and discounts this year.

You’ve probably heard about a lot of those already. Wal-Mart has been steadily lowering prices in recent weeks. Target is reportedly selling things like coffee makers and slow cookers for $3. Best Buy, Sears, Toys R Us, Disney, Staples and many more are getting in on the act.

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As I mentioned in last week’s Investor Brief, there’s an interesting dynamic at work here. Consumers now expect deals, so retailers are somewhat caught in a balancing act of meeting customers’ expectations with attractive discounts yet not slashing prices so dramatically that profit margins virtually disappear.

I’m particularly interested in how this holiday shopping season plays out, and I will continue to follow it with you. Consumer spending is always important (roughly two-thirds of the economy), but the stakes are higher than usual this year as the economy is just emerging from the devastating recession.

Enjoy the deals available this holiday shopping season. The jury is still out whether those deals will end up being good as good for businesses as they are for consumers.

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Questions? Comments? Write toinvestoragenda@cnbc.com

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