By  on December 7, 2004

BOSTON — Discounters with visions of ringing up merry numbers are going to have to work harder for the holiday dollar this year.

After a decade of explosive growth, the sector is being squeezed. From the top, Sears, Roebuck & Co., J.C. Penney and Kohl’s have emulated Wal-Mart’s price-slashing plays. From the bottom, the $20 billion dollar-store industry offers some of the lowest prices in small, easy-to-navigate stores, a key advantage over the discounters’ jammed parking lots and seemingly endless aisles.

The percentage of shoppers who visited a discount store on Black Friday dropped to 30 percent of households from 41 percent last year, according to surveys by America’s Research Group, which polls shoppers aged 20 to 59. Shoppers hit electronic category killers such as Best Buy, and electronics stores saw their Black Friday share leap to 20 percent from 7.3 percent of shoppers in 2003 this year, ARG said.

The retailing numbers for November indicated a widening gap between booming luxury stores and the discounters, whose customers have been pinched hardest by high fuel prices and lower-than-projected job growth. The disappointing November is emblematic of challenges the discount sector faces as a whole. Midtier stores like Sears and Penney’s met discounters on their own turf, offering early-bird hours and electronics at drastically reduced prices. These retailers marshaled trendy and colorful fashions around the splashy deals.

Wal-Mart, the world’s biggest retailer, has “taught other retailers how to be better at pricing and getting product to the shelf more quickly,” said Wendy Liebmann, president of WSL Strategic Retail. “You now also have the dollar stores taking away the Wal-Mart entry price point for low-income shoppers. At the other end, you have people saying that the big-box shopping experience at more than 200,000 square feet is incredibly difficult to shop. So these consumers might go there, but not as often.”

Responding to lower-than-projected sales, Wal-Mart on Friday launched a radio, television and newspaper advertising campaign that underscored its “everyday low prices” philosophy with the tag line “Why Wait for Rebates?”

Company spokesman Gus Whitcomb said Monday it was “too early to tell” whether the campaign pushed sales up this past weekend. Wal-Mart will not release sales numbers again until Jan. 6. During a prerecorded call on Dec. 4, the company reiterated a 1 to 3 percent projected comp-store sales gain for December, compared with a previous 2 to 4 percent estimate.Whitcomb sought to minimize the importance of the Friday after Thanksgiving.

“We have been leaders in saying nobody should look at Black Friday the way they used to,” he said “It certainly does not set the tone for the shopping season. But with all that taken into consideration, a lot of our competitors ran one-day sales, handed out rebates and used gimmicky-type things to get customers into the stores.”

Britt Beemer, ARG’s founder, said Black Friday is still crucial because it familiarizes shoppers with a particular store’s offerings and often sets the agenda for the rest of December. This year, for example, 62 percent of ARG’s respondents said they planned to do additional holiday shopping in the stores they visited on Black Friday.

“Wal-Mart underestimated its competitors’ capabilities and overestimated its customers loyalties,” said Darrell Rigby, retail analyst with Bain & Co. “If they repeat that error, it’s time to short their stock.”

Retail analysts said doorbuster deals, snazzy fashions and early openings added up to a more compelling presentation at the midtier players who have worked to build stables of exclusive brands such as Lands’ End at Sears or Bisou Bisou at Penney’s.

In contrast, Wal-Mart is returning to the design well, relying heavily on a Hanes Her Way fleece basics presentation that’s similar to one that was very effective last year.

Target, which reported November same-store sales increased 3.2 percent, in line with projections, does not have any major apparel launches on the floor this holiday season, but it has excelled in festive displays.

Kmart’s apparel presentation, lead by new contemporary line Attention and a refocused Jaclyn Smith, looked stronger than it has in years because of Kmart’s move to in-house design and direct sourcing. However, the ailing retailer lacks the marketing muscle to capitalize. Sales dropped 12.8 percent for the quarter ended in October. The Troy, Mich.-based company has kept mum on how its holiday is progressing and did not return a call for comment.

The Sears-Kmart merger, announced just before the holiday season, came at an inopportune time for a major distraction, said Steve Spiwak, chief economist for research consultancy Retail Forward.“The department stores have done a better job this year of grabbing new ideas,” said Smith Barney retail analyst Deborah Weinswig. “People are wanting differentiated fashion. There are lots of new trends out there that I think the discounters have missed. You see people carrying poker tables out of Macy’s.”

At the other end, the discounters are facing growing competition from the dollar stores, which are connecting both with low-income shoppers and with customers who like the novelty of the $1 price tag. Liebmann said dollar stores are often in neighborhoods where low-income customers live, saving them the gasoline costs of driving to Wal-Mart to buy similar items.

In recent months, Target has tacitly acknowledged the dollar stores’ clout by rolling out its $1 spot concept throughout the chain. At a store in Saugus, Mass., on Saturday, the dollar spot was among the busier areas, with its bins of $1 low-carb recipe books and Little Debbie Christmas Tree cakes.

William Cody, managing director at the University of Pennsylvania’s Jay H. Baker retailing initiative, said that Wal-Mart’s jazzy pre-Thanksgiving circular may have sent a mixed message to the retailer’s core low-income customers.

“The glossy paper and the whole presentation was out of character for Wal-Mart,” he said. “It wasn’t a picture of an associate holding up his son. There was instead the $99 [remote control toy] Cadillac Escalade.”

Wal-Mart’s Whitcomb defended the circular, saying the retailer’s everyday low price “concept was clear and apparent when you looked at prices throughout.”

Gas prices have also haunted low-income customers this fall. Though crude prices have eased, Cody said the relief will not come fast enough to make a significant difference for retailers.

Meanwhile, the ambience at Wal-Mart “isn’t particularly festive,” Spiwak said. “So if Wal-Mart isn’t going to compete on price, then customers want to go somewhere where it’s more jolly, where they feel comfortable hanging out.”

Visits to Wal-Mart stores in Massachusetts and Texas last weekend indicated that Wal-Mart’s attempts to spur traffic by slashing prices on key items and blitzing key markets with radio, newspaper and television ads hadn’t created a shopping frenzy. Parking lots were full, but that’s true of most weekends; Wal-Mart is accustomed to traffic jams at this time of the year.“I think they misread their customer and they’re going to end up paying a price for it the whole month of December,” said ARG’s Beemer. “I’m sure Sam Walton turned over in his grave [Black] Friday morning to see his own store had forsaken its own heritage to wow customers.”

Indeed, the assortment felt like a rerun of the previous year without a new powerhouse idea. The $4.77 mini appliances were back. Multipiece manicure sets, identical to the ones sold last year, were among the items prominently stocked in the apparel and personal care departments.

Stock was uneven. A popular endcap of bath sets, with new scent combinations such as apple-current, was all but empty by midday Saturday at a Wal-Mart in North Reading, Mass. An associate said new stock would not be in until Monday.

In addition, more shoppers seemed to be focused on staples — pet food and paper towels were in many carts — rather than seasonal goods. That matches Wal-Mart’s chainwide assessment, which has been running “stronger in food and less strong in general merchandise,” according to its prerecorded sales call.

Some shoppers did jump at the items Wal-Mart aggressively discounted after Black Friday. Initialed handbags, for example, were marked with a hand-lettered $5 sign, from $11.68. Anna Negron, 27, grabbed three before she had even decided to whom to give them as gifts.

At the Wal-Mart Supercenter in the Dallas suburb of Valley Ranch, the price-cutting strategy was evident in a few places but wasn’t heavily promoted. An Orion 27-inch flat-screen television was on sale for $149.88, discounted from $178.88 the week earlier. Similar price cuts of 10 to 20 percent were noted throughout electronics and home departments where many items were sold out.

Wal-Mart’s apparel department was also short of fashion, with the exception of the George brand, which scored with Chanel-inspired tweed jackets with crystal, lace, metallic or fringe-detail at $26.82 and matching godet skirts at $26.82. There were also Prada-inspired pastel knit zip-front sweaters with faux fur collars at $19.82.

Joy Sims, a 42-year-old accountant, snapped up two of the George tweed suits in gray and black, one to give as a gift and the other to wear to work. “I don’t want to look boring. I follow fashion and these are really happening,” she said.At Target, shoppers seemed more focused on the seasonal purchases than at Wal-Mart. Outdoor Christmas lights were depleted at a store in Saugus, Mass., where almost every cart had a role of wrapping paper poking out of it.

Pauline Swift was a typical Target shopper, having picked out two men’s Breakwater brand shirts as gifts for her husband. She also had a glass hurricane vase, a red candle and a package of silver balls to create a centerpiece. She said she didn’t need much else for decor.

“I bought all my runners and napkins and wrapping paper on sale after Christmas last year,” she said. “In fact, I think I bought them here.”

— With contributions from Rusty Williamson, Dallas, and Vicki M. Young, New York

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