Retailers Avoiding Excessive Markdowns -- So Far

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Retailers are showing restraint and largely avoiding excessive markdowns in the second week before Christmas, aware that a relative lull in sales may be soon forgotten once the busiest shopping weekend of the year approaches, industry experts say.

Lean inventories and sales figures in line with estimates are helping to allay some stores' fears that they must discount heavily this week in order to stay above the competition this holiday season.

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"The retailer is not panicking at this point," said Marshal Cohen, chief analyst at market research firm NPD Group. "Sales are good enough, inventories are in line and not one individual store has pushed the panic button first yet."

Some analysts have predicted volatility in retail stocks throughout December, the month which generates the bulk of annual sales for retailers. But both the Standard & Poor's Retailing Index and the Dow Jones Retail Index are down just .88 since Dec. 1, with the S&P Specialty Retail Index down less than half a percent since the beginning of the month. All three indices are up slightly since mid-November.

Fluctuations could still occur as the month progresses, warned analyst Mark Friedman of Merrill Lynch in a research note, noting that increased discounts will "give rise to concerns about holiday sales."

In a season characterized by a greater number of promotions than past years -- jump-started by Wal-Mart Stores Inc.'s (WMT) aggressive markdowns last month -- analysts had predicted a flurry of last-minute promotions as Christmas neared. Saturday is now expected to be the day when stores substantially turn up the heat on promotions, which will gain in momentum as next week progresses.

Brean Murray analyst Eric Beder acknowledged in an investors' note that retailers this week were "slowly raising the dial on discounting levels." But, he added, most remained "somewhat subdued in cutting prices," which he attributed to lower inventories, citing mall-based retailers Claire's Stores Inc., Guess? Inc. and Abercrombie & Fitch Co. as examples.

"We believe that most of the mall is on plan for the season and there have been very few 'cracks' in the retailing facade as we enter the period of high pressure," Beder wrote.

The International Council of Shopping Centers, which tracked a 3.2 percent increase in sales over last year for the week ending Dec. 10, also noted in a weekly sales release that "most promotions seemed close to plan."

But the ICSC found that as of last Sunday, only 13 percent of households had completed their holiday shopping -- meaning that far more gift-buying lies ahead.

Retailers will benefit from the day before Christmas falling on a Saturday, which the ICSC said would contribute to a sales surge during the week ending on Christmas Eve.

Analyst Friedman predicted more aggressive markdowns over the next two weeks at apparel retailers such as American Eagle Outfitters Inc. (AEOS), AnnTaylor Stores Corp. (ANN) and Gap Inc. (GPS), which he noted had thus far offered fewer-than-expected markdowns.

To date, retailers marking down the most steeply, according to analyst Beder, include Charlotte Russe Holding Inc. , Aeropostale Inc., Limited Brands Inc.'s (LTD) Express stores and Wet Seal Inc.'s Arden B. chain.