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Will Holiday Price Promotions Yield a New Year Profit Hangover?

4 Dec, 2005 By: Kurt Indvik

The results were in early last week on the Black Friday and Thanksgiving weekend sales receipts, and the news was good … or was it?

On the surface, the numbers were impressive. More than 145 million shoppers rang up $27.8 billion — a whopping 22 percent increase from the same period last year, according to the National Retail Federation. About 47 percent of shoppers interviewed by the NRF said they bought DVDs, books, CDs and video games. The NRF estimated more than $18 billion was spent on Black Friday. Deep discounting and longer store hours may have boosted this growth, the NRF said.

Record numbers of online shoppers logged onto the Web. According to Nielsen/NetRatings, 7.4 million shoppers visited 100 online retailers on Black Friday alone — a 29 percent increase from last year. Analysts pointed to online retailers' aggressive promotions, including discounts and free shipping. The fastest-growing category online was toys and video games (fueled by the Xbox 360 debut), with a 142 percent leap for the holiday week, followed by consumer electronics (flatscreen TVs and iPods), which enjoyed 102 percent growth.

Yet on the Monday following the record holiday shopping weekend, stocks for some of the leading retailers, such as Wal-Mart, Best Buy, J.C. Penney and Federated Department Stores, were down. Amazon.com was one of the few retail stocks to see an increase that day — one of the year's busiest online shopping days.

Analysts are wondering if retailers went too far with discounts, which may depress profits. There also was a conflicting report from ShopperTrak, which measures purchases at 45,000 malls, that showed a 0.9 percent decrease in Black Friday sales compared to last year.

Not surprisingly, the DVD market wasn't left out of the deep discounting. Chains such as Wal-Mart, Circuit City, Wherehouse and Vons were offering first-run movies like Kingdom of Heaven, Shrek, “The Lord of the Rings” films, The Day After Tomorrow, Meet the Fockers and others for $3.44 to $9.99.

Entering the last weeks of the holiday retail season, will retailers ratchet up promotions even more to let the cash register ring and worry about the bottom line after the New Year? Stay tuned.
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