More retailers will be using deep discounts to lure shoppers into stores this holiday season.
It's good news for consumers, but could mean bad news for businesses.
Roughly 63 percent of merchandise at department stores such as Macy's and Lord & Taylor will be discounted this year, up from 60 percent last year, according to a study by Refinitiv in collaboration with StyleSage Co.
The study found retailers are also more aggressively sending out emails with promotions heading into Black Friday — 6.85 messages were being distributed per retailer per week, compared with 7.09 during the same period a year ago. The average promotion being highlighted is 40.8 percent off sticker price, Refinitiv found, up from 38.9 percent a year ago.
"Everyone is concerned about what is on sale, but what's interesting is what's not on sale," Refinitiv analyst Jharonne Martis said. She said some of the "hottest" holiday items, such as sweaters and swimwear, have some of the lowest discounts.
"This suggests that retailers are luring shoppers in with other promotions, and hoping they will pay full price for those hot holiday gift items. If they are successful, this can help improve margins."
The concern among analysts — and something they're all watching closely — is that too much promotional activity will weigh on profits. Though steep sales can lure shoppers into stores, selling too much at low prices won't help companies' earnings but instead can hurt them.
Retailers such as Walmart and Target are already heading into this holiday season facing margin pressure due to heightened investments in their supply chains to keep pace with Amazon in getting online orders to customers. Their stocks recently took a hit because of this.
The discount sector that includes Walmart and Target, however, will have fewer promotions in stores this year, implying these companies are working toward improving margins, according to the Refinitiv study. It's the department stores that are expected to have more deals. And it's the department stores like J.C. Penney that also rely the most on Black Friday and Cyber Monday to match or beat quarterly earnings estimates, Refinitiv found.
For the fourth quarter, Macy's, Nordstrom and Kohl's are expected to report same-store sales growth, according to a survey of analysts by Refinitiv. Dillard's and Penney, meanwhile, are predicted to have negative same-store sales for the holiday period.
Some of the Black Friday doorbusters shoppers can look out for this year: Penney is handing out envelopes starting as early as 2 p.m. Thanksgiving Day with coupons inside for at least $10 off a purchase worth $10 or more. Some lucky shoppers could snag deals for $100 off a $100 purchase or $500 off a $500 purchase. In stores, Macy's will be offering a dozen different mail-in rebates to get items like glassware sets and Ralph Lauren-embellished pillows for free. Sears, which recently filed for Chapter 11 bankruptcy protection, is giving shoppers back $50 in loyalty points for purchases over $50.
Holiday sales are expected to top $717 billion this year, climbing as much as 4.8 percent from a year ago, according to the National Retail Federation. That would be better than a five-year average of growth of 3.9 percent.