By  on November 26, 2007

Heavy promotions drove the weekend, and may impact margins, according to analysts.

"Retailers had unbelievable promotions and extended hours, so I'm not surprised at the results," said Michael J. Silverstein, senior partner at Boston Consulting Group.

Silverstein's firm is expecting a good, but not exceptional, holiday shopping season. He said with unemployment flat and the income of the top 40 percentile in a growth mode, retail sales will likely come in better than expected.

The top 40 percentile accounts for 65 percent of total U.S. consumption, and the group has a median income of $175,000, which is growing in real terms, Silverstein said.

"So they are not likely to give up Christmas," he added.

Still, Silverstein admitted there is tremendous pressure on lower-income households, which explains why Wal-Mart Stores shifted its focus earlier this fall back to everyday low-price promotions.

But what that means for the long holiday shopping season remains to be seen. Deborah Weinswig, retail analyst at Citigroup, said in a research note Saturday that the "usual Black Friday buzz was tempered by the lack of must-have items in key giftable categories."

"The promotional excitement of Black Friday was lessened by retailers' early promotions and [Wal-Mart]'s aggressive stance on pricing as early as October to gain customer mindshare," Weinswig said in her note. "We believe that macro pressures led low-end consumers to stick to the hot Black Friday promotions. We continue to believe that Broadlines retailers' same-store sales will be a sluggish 2 to 3 percent [gain]."

In the midtier battle between J.C. Penney and Kohl's, Weinswig said the retailers' 4 a.m. opening benefited Wal-Mart "as shoppers were able to catch Wal-Mart's 5 a.m. opening after shopping at J.C. Penney and Kohl's."

One source close to Kohl's said early traffic was strong. A store in Newburgh, N.Y., which is near the intersection of two interstate highways, had sales on Black Friday of over $350,000.

Weinswig said, though, that traffic lessened after shoppers hit the stores early. "Consumers took a targeted approach to Black Friday, sticking to their lists," she said. "Most appeared to be buying very little for themselves, despite the coldest Black Friday in 10 years. The initial burst of traffic quickly dissipated as consumers finished their shopping early."In the broadlines sector, Weinswig said LCD TVs, GPS navigation systems, video games, and toys "were among this year's hottest items. Early customer traffic appeared to be concentrated in kids' apparel, toys, electronics, shoes, and home. Concerns over toy safety that surfaced in the weeks leading up to Black Friday did not appear to have a significant impact on toy sales."

In regards to who will come out top this year, Weinswig predicted Saks and Wal-Mart. "Amid concerns about the consumer and with a very promotional start to the holiday selling season, we believe that Saks and Wal-Mart will be the winners this year," she said. "Based on company-specific initiatives in both advertising and more-localized merchandising, these retailers should see better sales performance relative to their peers."

Meanwhile, retailers worked hard to extend the promotional rush of Black Friday through the weekend. In Sunday circulars, J.C Penney and Kohl's each offered markdowns on select categories of 20 to 60 percent.

Michele Rothstein, senior vice president of Chelsea Property Group, a division of Simon Property Group, said the firm's outlet centers had early openings on Saturday and Sunday. She said preliminary traffic reports were positive as consumers swarmed in early to hunt for bargains.

Rothstein said many of the company's outlet stores opened at midnight on Black Friday. "Shoppers lined up several hours before," she said. "At Coach in Woodbury Commons Premium Outlet, for example, over 100 shoppers had lined up by 8:30 p.m. [on Thanksgiving]. And the store had steady traffic through the day. Yes, people are looking for bargains, but it is much more than that. Shopping on Black Friday and Thanksgiving weekend has become an event."

In fact, Chelsea Property Group has marketed midnight openings as a "must-do event."

Michael L. Unger, a director of retail and consumer products, at Archstone Consulting, said he was surprised at the "crowds on Black Friday who responded to the level of promotions offered by retailers."

Unger suggested Black Friday should be renamed "Red Friday" due to the heavy promotions. "The robust sales on Black Friday will come at the expense of lower gross margins," he said, adding he expects to see a 3 percent sales gain for the holiday season. "We are going to have to see how it pans out."

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