This holiday season, retailers are racing to coax skittish consumers into spending more for Christmas by marketing themselves as budget stores, analysts said.
J.C. Penney last month began selling all of its holiday decorations and artificial Christmas trees at 50 percent off, even before customers threw away their jack-o'-lanterns from Halloween.
And discount stores may be getting a boost of sorts from the economic downturn. Many shops say they're selling more toys this year that appeal to cost-conscious consumers seeking bargains for their children.
"You're looking at probably the biggest deal mindset in the history of America," said Britt Beemer, chairman of Charleston, S.C.-based America's Research Group. "Whoever has the biggest deal is going to win."
That bargain-basement atmosphere comes as consumer confidence plunged to a 41-year low in October, according to New York-based The Conference Board, a pro-business trade group.
Add up all of America's jitters about rising unemployment, the uncertain stock market and weaker home sales, and it's no wonder that shoppers' confidence has taken a big jolt. Meanwhile, the U.S. Commerce Department said last week that consumer spending fell by 0.3 percent in September after two previous months in which spending was essentially flat.
The national financial outlook is dimming just as the critical holiday shopping season looms, and stores from New York City to Lower Broadway in Nashville are bracing for what could be one of the most difficult yuletide seasons on record.
David Wyss, chief economist at Standard & Poor's in New York, said he believes the national recession could turn out to be the longest-running one in the post-World War II era.
"Things are still looking soft and the light at the end of the tunnel is a long way off," he said.
So, the question becomes: Will local consumers stash their credit cards and keep a tight grip on their wallets? Or can any retail strategy entice them to buy?
Shoppers cut backWinners this Christmas shopping season could be those stores that sell more practical gifts — or merchandise that's perceived as such a big bargain that shoppers can't say "no."
Bargains abound, but not every consumer is buying just yet.
Even half-price glass ornaments and Disney snow globes at J.C. Penney in CoolSprings Galleria couldn't entice podiatrist Preston Boles, 45, to buy last week. Instead, Boles said his family planned to revamp its old decorations and put up a 4-year-old artificial Christmas tree.
"We have to reuse the old," Boles said, adding that heavy discounts in stores are a "reflection of the economy. It's sad."
Boles said he's seen his 401(k) drop $30,000 over the past three months because of stock market volatility, forcing him to cut his spending on gifts this year by half to $1,000 and to seek out smaller presents.
He'll still browse the big department stores — like Belk and Dillard's — but this year, Boles said he's more inclined to buy presents at Wal-Mart and Target to save a few bucks at stores known for value.
In fact, 68 percent of shoppers surveyed said they plan to do more shopping at Wal-Mart and Target this year compared with 2007, according to an October survey by New York-based GfK Roper Consulting.
"The No. 1 reason was that (consumers believed) things are cheaper there," said Executive Editor Diane Crispell of GfK Roper Consulting. "People feel they can get the same goods at the lower price."
Discounters are taking note. Goodlettsville-based Dollar General Corp. said it increased its preschool toy assortment to meet the needs of younger families this year, as well as added more board games such as Yahtzee. Many of the toys are under $10.
"Our shoppers are on a budget. They have a certain amount of money to spend," said Bryan Wheeler, Dollar General's vice president and division merchandise manager. "We think our toy assortment will help them stretch their budgets farther."
Discounters can take riskDiscount grocer Aldi, a German company known for selling inexpensive food and produce under its own brand names, will begin selling the hand-held video gaming system Nintendo DS and the Hannah Montana Electric Guitar starting in early November.
"Certainly this is a great time for more people to find out about us," said Aldi spokeswoman Martha Swaney.
Crispell of GfK Roper Consulting said that, in a challenging environment, "a little bit of risk is a smart approach" for discounters such as Aldi that are adding new products. Discounters know more consumers will enter their stores looking for deals, she added.
"If anybody can take a risk right now, it's the discounters," Crispell said.
Stores such as Dillard's, Sears or J.C. Penney in the middle of the retail sales spectrum will probably market themselves as "value" retailers this Christmas, Crispell said.
"The real key word is 'value.' I don't think you have to lower your prices to the floor to compete with Wal-Mart," Crispell said. "You just need to convince people the money they are spending with you is worth it."
Consumers will tend to stay away from buying expensive items like flat-screen TVs or laptop computers and go for less-expensive gifts such as sweaters or warm-up suits, stock analyst Richard Jaffe of Stifel Nicolaus predicts.
"The economy is under a great deal of pressure," Jaffe said. "From a psychological level, there is a lot of uncertainty and doubt about the economy … and that just heightens the consumer's reluctance to spend."
Sara Lindsey, 28, a nurse, said that last Christmas she bought her husband hunting clothes, formal attire and a new watch. This year, she's not getting him anything.
"We're cutting back on how much we spend on everybody this year," the Mt. Pleasant resident said.
Retailers are at a disadvantage this holiday shopping season because there are five fewer days to shop between Thanksgiving and Christmas, analysts said. That will push retailers to get shoppers in stores earlier.
Evidence of that trend has already cropped up locally. This year, Opry Mills will kick off its marketing campaign called "Shop Smarter" the day after Thanksgiving, and for the first time in the mall's eight-year history, it will open at midnight Thursday instead of dawn on Black Friday.
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