CHICAGO – Wal-Mart Stores Inc. (WMT) got off to a fast start this holiday season with an aggressive, early advertising campaign, but Target Corp. (TGT) and Best Buy Co. Inc. (BBY) look set to catch up quickly, analysts said on Friday.
Toys and electronics are likely to be at the forefront as chain stores unveil big markdowns for next week's Thanksgiving weekend sales, and Wal-Mart may not be able to sustain its early price advantage against those two formidable rivals.
"The playing field will be leveled by Black Friday," said Deutsche Bank analyst Bill Dreher, referring to the day after Thanksgiving, which got its nickname because it traditionally marked the point when retailers turned a profit.
Dreher said his research indicated that Target and Best Buy would probably have the lowest Black Friday prices on key electronics and toys, although Wal-Mart will showcase a few eye-popping deals like $398 laptop computers in hopes of luring the crowds.
Overall, analysts are expecting modest holiday sales growth as consumer confidence falters and steep energy prices boost home heating bills. Many retailers planned early discounts to drive sales before the first of those winter bills arrive.
Profit growth forecasts have been coming down as Wall Street worries about holiday sales. Analysts on average are expecting retailers to show collective 12.9 percent earnings growth for the fourth quarter, said Ken Perkins, president of research firm Retail Metrics.
That figure does not reflect Thursday's weak forecasts from heavy hitters like Gap Inc.(GPS). At the beginning of October, the average estimate called for 14.5 percent growth, down from a 15.8 percent forecast in July, Perkins said.
Wal-Mart, the world's biggest retailer, launched its holiday advertising on November 1, the earliest in company history. Analysts said the quick start left other chains behind, noting that Target warned earlier this week that November sales would miss its expectations.
Last November, Wal-Mart reported disappointing sales after keeping prices too high. The Bentonville, Arkansas-based retailer vowed not to repeat that mistake and has said early demand looks strong for electronics and toys, but declined to comment on specifics about its strategy.
"I don't think our customers will be disappointed," spokeswoman Gail Lavielle said.
Target and Best Buy did not immediately return calls.
Deutsche Bank's Dreher compared prices in key categories, including flat-panel televisions, portable DVD players, small appliances, toys and digital cameras, and found aggressive discounts planned across the board at major retailers. But a closer look at eight comparable items showed Target's prices were roughly 3.1 percent lower than Wal-Mart's.
Best Buy, which plans to open at 5 a.m. on Black Friday, has said it expects fierce price competition this holiday season and was banking on its customer service to draw shoppers. The retailer will probably get an early influx of holiday customers on Tuesday, when the hotly anticipated Xbox 360 video game console is released.
A.G. Edwards analyst Brian Postol said his research found Wal-Mart's electronics prices were about 0.8 percent below Best Buy's, but the average difference was only $1.10 per item.
That is probably not enough to drive customers away from Best Buy, Postol said, adding that Wal-Mart probably would cut prices further as the holiday season progresses.
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