Retailers Aim to Limit Discounting This Holiday Season

NEW YORK – Instead of using deep discounts to lure shoppers this holiday season, Domain Home Fashions (search) is sending design consultants to their homes for free.

Bloomingdale's also plans to discount less, counting on upscale holiday decor and splashy versions of its private label merchandise to motivate shoppers. And Bergdorf Goodman (search) is focusing on designer names that can't be found elsewhere to draw well-heeled shoppers.

As holiday shopping starts in earnest Friday amid an improving economy, many of the nation's retailers -- particularly department stores and apparel merchants -- plan to be stingier with markdowns than in the past. They're counting on consumers to be so pleased with new services and exclusive merchandise that they'll be willing to pay full price.

Some analysts question whether this strategy will work. Consumers have gotten used to putting off their shopping while they wait for prices to fall, and they may well force retailers to take heavy markdowns later this year.

"This is definitely a high stakes Christmas," said John Morris, an analyst at Harris Nesbitt Gerard (search), estimating there were 10 percent fewer markdowns going into the start of the season than a year ago at the 25 apparel chains he follows. That's the first decline since 1998.

"Retailers are trying to lure the consumer with fewer discounts, but how strong will consumers be? We're moving away from a period of uncertainty, and consumers are feeling a little bit better, but they are still tentative," he added.

Shoppers who rushed into stores Thursday for holiday sales were indeed particular about pricing, with many insisting on the deepest discounts available.

Sheila Millines, a police clerk visiting a Kmart in Chili, a suburb of Rochester, N.Y., picked up a $35 Light and Sound Kitchen for her daughter and various $20 items for her granddaughter but was disappointed that Bratz dolls were already sold out by 9 a.m.

"I got up a little too late!" she said. "Any time there's a sale, you'll see me in a store."

Mary Jean Donofry, 52, of Philadelphia, agreed. She planned to buy a Western Alder home entertainment center that was to be on sale for $99.99 this weekend but got an early start when she learned they were available Thursday.

"Right now, the cupboards are full and the stands are full, and all the racks are full, and you're first to get the deal," Donofry said at Kmart.

Clearly, retailers are more optimistic. In 2002, uncertainty over the prospect of war in Iraq and a spate of corporate layoffs weighed heavily on consumers. This year, the economy is on the rebound, with employment improving. Consumer confidence is also improving.

Still, after a strong summer, retail sales have been uneven the past few weeks, hurt in part by warm weather that has made winter apparel less appealing, according to Michael Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd.

Many problems still plague the industry. Deflation, or a drop in prices, has been an issue for some retailers, such as toy and electronics merchants. And while the labor market is improving, the unemployment rate is still at 6 percent.

Meanwhile, no must-have item have emerged, although in toys, Fisher-Price's Hokey Pokey Elmo, Mighty Beanz from Spin Master, and MGA Entertainment's Bratz dolls are some of the best sellers.

Niemira forecasts a sales gain of 4.5 percent for the November-December period, the best performance since 1999, when the tally rose 5.4 percent. He based the estimate on sales from stores open at least a year, considered the best indicator of a retailer's health.

Last holiday season's results were unchanged from 2001.

The Washington-based National Retail Federation projects total holiday sales to rise 5.7 percent to $217.4 billion.

The luxury business is expected to be a big winner this season, and analysts believe upscale merchants will have the easiest time persuading customers to pay full price. Bergdorf Goodman said its sales have been strong although the company is discounting less. Bergdorf plans one sales event during the season, eliminating two others, and hopes to delay markdowns until after Christmas.

"The customer's appetite is back," said Robert Burke, vice president of fashion.

At Domain, the upscale furniture chain, founder and CEO Judy George said the free design consults, which started in October, have generated average furniture purchases of $1,800 per visit.

"Instead of discounting, what we are really promoting is making your home more beautiful," she said.