Jun 11, 2009
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Lower prices, fewer dresses on racks this Christmas

Jun 11, 2009

By Nicole Maestri - Analysis

NEW YORK (Reuters) - Fewer party dresses, a return to the classics, lower price tags and emptier store shelves -- those are the strategies U.S. retailers have devised to try to successfully navigate this year's Christmas season.

Retailers, reeling from a 2008 U.S. holiday shopping season that was the weakest in almost 40 years, have spent the past six months repositioning their business for a "new normal" where shoppers spend selectively, are price sensitive and need to be convinced that their purchases are not frivolous.

But in a glimmer of hope for the battered industry, many executives speaking at the Reuters Global Luxury and Retail Summits this week said their sales have started to stabilize in recent weeks -- instead of falling further.

That is giving them some restrained optimism on the prospects for the year-end fourth quarter -- the most important one of the year for retailers and the one that was toughest for them a year ago.

"That's the biggest-volume quarter and that's the quarter (when) we had the most difficulty last year," J.C. Penney Co Inc CEO Myron "Mike" Ullman told the Reuters Retail Summit. "So we are probably the most optimistic about the fourth quarter."


While retailers were planning conservatively for Christmas last year as the economy slowed, none were prepared for how drastically shoppers cut spending in the fourth quarter as the financial crisis spread across the globe and consumer confidence plunged.

Since then, consumers across the income spectrum have adopted a frugal mind-set. They are shunning purchases of flashy designer clothes or handbags, and sticking to buying medicine and food or electronics that can be used to entertain at home.

Sales of luxury goods are expected to drop 10 percent this year, according to Claudia D'Arpizio, a partner at consulting firm Bain & Co. But she said consumers are still showing a willingness to spend on luxury items that they view as a durable, high quality investments -- like an Hermes handbag.

Those spending habits are being factored into merchandise plans for Christmas.

While retailers are cutting their orders for luxury goods by 15 percent to 20 percent, they are looking for designers to add more classic pieces to their lines, D'Arpizio said.

That is the case at Saks Inc, where CEO Stephen Sadove said shoppers want classic brands and are focused on price. The upscale department store operator, which slashed prices as much as 70 percent last holiday season to move unsold merchandise, will sell a $750 Prada handbag where it had a $1,000 handbag before, although the bags are not identical.


Edgar Huber, president of Juicy Couture, a unit of Liz Claiborne Inc, said the clothing retailer is adding more merchandise, like track suits, that are priced under $200, although its average prices are between $200 and $250. This Christmas, Juicy shoppers will find fewer higher-priced coats and party dresses in its stores, he said.

Jonathan Adler, who designs everything from $24 Christmas ornaments to $3,200 sofas, believes "irresistible giftables" will help trump the recession this holiday.

"I kind of love the recession as a designer, because it is like throwing down the gauntlet to a designer to make stuff better and more irresistible," said Adler, who runs his own stores and also sells his merchandise at upscale retailers like Barneys New York.

Penney's Ullman forecast holiday demand for colorful new fashions that are affordable, like men's sweaters, while Gerald Storch, the CEO of Toys "R" Us, expects a strong holiday season for video games.

Given how poor their sales performance was in last year's fourth quarter, many executives said they are confident they can post an improvement this holiday season. With less merchandise on store shelves, executives said they will be better able to protect their margins and avoid the profit crunching clearance sales witnessed last year.

Juicy Couture's Huber expects his same-store sales for the year-end holiday season to rise at a high single-digit rate from the year earlier period, although he is cautious about what the next few months will bring.

"Everyone says that, in September, the commercial real estate bubble will hit us very badly," he said.

But he is hoping for the industry's sake the holidays bring good cheer.

"I think it would be bad for the whole industry if we have another negative trend on a very negative trend of 2008," he said.

(For summit blog: blogs.reuters.com/summits/)

(Editing by Phil Berlowitz)

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