Expectations as well as apprehensions have begun to loom around Wall Street as another crucial holiday spending season is set to unravel with Black Friday, the day after Thanksgiving. Although the first use of the term 'Black Friday' is not exactly known, many consider it as the official beginning of the holiday shopping season.
According to a popular theory, stores that are operating at a financial loss for most of the year will turn to a profit during the holiday selling season following Thanksgiving. In common accounting practices, red ink is used to show negative amounts and black ink to show positive amounts. Based on that, the Friday after Thanksgiving Thursday is the beginning of the period where stores turn to black from red, i.e. from loss to profit.
Another theory is based on that day's extremely stressful shopping experience with rushing crowds as many employees take off although it is not an official holiday. On Black Friday, many retailers open very early, typically at 5 am or even earlier, and offer doorbuster deals to attract the early birds among shoppers.
Historically, Black Friday has been one of the busiest retail shopping days of a year in terms of customer traffic. Usually, sales during the four weeks after Black Friday account for about 50% of stores' profits and sales. From 1993 through 2001, Black Friday was the fifth to tenth busiest day of the year. In 2002 and 2004, Black Friday ranked second place, while the Saturday before Christmas became the busiest day. In 2003 and 2005, Black Friday reached the first place.
According to MasterCard Advisors, the professional services arm of MasterCard, total sales for the days between Thanksgiving and Christmas were up 8.7% in 2005 and 6.6% in 2006. For the 2006 holiday season, computer hardware category was the strongest among sold items, followed by consumer electronics, video game consoles & accessories, jewelry & watches, and event tickets. Top retailers also witnessed a surge in online transactions during the holiday selling season of 2006.
Unfortunately, the scenario reversed since the last holiday season, as an unprecedented numbness is now prevailing across each and every sector of the U.S. economy. While panicky investors continue to make stock markets choppy, crisis in the sub-prime mortgage sector and tight credit market have led to an increase in the number of credit defaulters in the country. Further, consumer confidence, which was already in shaky grounds on soaring living costs, has been hit hard by growing unemployment, as more and more people are turning jobless day by day.
As per the government's October non-farm unemployment report, the jobless rate rose to 6.5% from 6.1%, the highest level since 1994. In October, the American economy lost another 240,000 jobs, and analysts now expect that unemployment will reach 8% by the middle of next year. The Reuters/University of Michigan survey showed that U.S. consumer sentiment index dropped to 57.6 in late October, compared with 70.3 in late September.
Amid all the havoc, the only solace for consumers as well as retailers is fuel prices, which has now started a roller coaster ride after touching a peak of around $147 a barrel in July. Retailers, who rely heavily on the trucking industry to transport merchandise, are expected to see a decline in their overhead, helped by the reduction in oil prices.
According to SpendingPulse Mid-Season Holiday Shopping data from MasterCard Advisors, consumer spending from Thanksgiving to Christmas was up just 3.6% in 2007 over 2006, the weakest performance in about four years. Excluding gas, overall holiday sales rose only 2.4%.
The data, which analyzed the sales of Electronics, Specialty, eCommerce and Luxury sectors for 20 days beginning from Black Friday, showed that consumer spending on electronics grew 5.8% over the same period a year ago. Overall, specialty apparel sales rose 0.5% from last year. eCommerce sales climbed 29.8%, reflecting consumers' growing spree for online shopping, the report said. Wal-Mart Stores Inc. (WMT) and Best Buy Co. Inc. (BBY) were the major winners of the 2007 season with competitive pricing. Ironically, Best Buy recently warned on its full-year results, while peer Circuit City Stores Inc. (CCTYQ.PK) was forced to file for bankruptcy protection.
Bleak Outlook
This year, consumers are not expected to help retailers as they have done in the past. Even luxury stores that have been immune to market weakness in general are projected to take a hit this time, according to consumer analysts. Fashion specialty retailer Nordstrom Inc.'s (JWN) poor third-quarter results and weak outlook prove these comments. The anticipated reduction in holiday consumer sending would have far reaching effects on the nation's already-reeling economy, as consumer spending makes up about two-thirds of the country's economic output.
Scott Hoyt, senior director of consumer economics at Moody's Economy.com, reportedly said this holiday season will be shaped by two forces, consumers' poor spending level and their lost confidence in economic future. Collapse in housing prices and dramatic stock market losses have brutalized consumer psyches, and hence, the slowdown may be harsher than it was before, Hoyt noted.
John Holub, president of the New Jersey Retail Merchants Association in Trenton reportedly stated that the fluctuations on Wall Street, the credit crisis and other woes have created several issues for retailers to cope with. "The one silver lining is gas prices have dropped." "But I don't think that's enough to offset the consumer confidence," Holub noted. In his opinion, despite the economic stimulus from the government, consumers have not gone to shop for big-ticket items like new TVs. He believes a lot of people took their stimulus checks to focus on necessities.
Meanwhile, Retail Metrics' research analyst Ken Perkins is of the view that discount retailers and off-price stores like BJ's Wholesale Club Inc. (BJ), Costco Wholesale Corp. (COST), and Big Lots Inc. (BIG) would fare very well, whereas, specialty retailers would face a difficult period as they offer highly discretionary product mix. High-end items such as LCD and plasma-screen televisions may be hard sells, he noted. Consumer analysts also expect that small, independent retailers will struggle in the market slowdown. True to Perkins' views, BJ's on November 19 reported a 24.4% rise in its third-quarter profit, with double-digit growth in net sales and comparable club sales. The company also lifted its fiscal 2008 earnings forecast.
Further, forecasts from several industry trade groups confirm the industry specialists' fears. They project that holiday sales will hardly rise above last year's figures. While the National Retail Federation expects a mere 2.2% rise in 2008 holiday sales to $470.4 billion, the International Council of Shopping Centers forecasts a meek 1.7% increase in chain-store sales compared with the 2007 holiday season.
America's Research Group's Orlando-based chairman Britt Beemer reportedly predicts a 1% year-over-year drop in Christmas retail sales, his first negative forecast in 23 years. Another industry analyst expects that the 2008 holiday shopping season will signal the end of the consumer-based economy in the U.S.
As per a poll conducted in mid-October among 1,525 randomly selected adults by market research firm Maritz Research Inc., retailers can expect slightly larger crowds this year, but their average spending will be less. According to the survey, shoppers plan to spend about $546 on holiday gifts this year on average, 14% lower than their last year's spending. The poll also revealed that an average Black Friday shopper plans to spend 45% of their total holiday budget on the day after Thanksgiving.
In the meantime, October retail sales, which can be seen as a precursor to all these predictions, have declined 2.8%, according to the U.S. Commerce Department. The drop represented the fourth straight month of declines. Excluding auto sales, the decline in retail sales was 2.2% in October.
Expecting the Best and Preparing for the Worst…
Despite all the negative predictions on holiday spending, nation's retailers and stores seem to be preparing for the season. Targeting consumers with deep pockets, many stores have started offering early discounts and other incentives. Wal-Mart, Kmart, and J.C. Penney Co. Inc. (JCP) are among those who already advertised Black Friday-like discounts on electronics, toys, clothes and Christmas decorations, reports said. Kmart, for the first time, has started offering products at what it calls "Black Friday prices." In the opinion of Beemer, Wal-Mart's prices will set the floor on the prices of toys, electronics and other holiday items.
While Kohl's Corp. (KSS) and Macy's, Inc. (M) are focusing on advertising children's clothing and basics, stores like Sears Holdings Corp. (SHLD) are trying to boost sales by offering to help charities. Further, Target Corp. (TGT) and Toys "R" Us are offering weekly price cuts on featured items.
Nonetheless, all these preparations by retailers and off-price stores to entice consumers do not mean that they are fully optimistic about the holiday selling season and the upcoming quarter. Wall-Mart has projected fourth-quarter earnings below analysts' estimate and cut its earnings outlook for the full year. Kohl's, which expects an 8% to 12% fall in fourth-quarter same-store sales, lowered its earnings outlook for the fourth quarter and the full year.
"We expect the holiday season to be the most challenging in years and will be very competitive in order to gain market share," Kohl's Chief Executive Officer Kevin Mansell said.
Nordstrom expects fourth-quarter earnings below analysts' expectations and lowered its earnings outlook for the full year. J.C. Penney also sees fourth-quarter earnings below analysts' expectations, and predicted that the challenging retail conditions will last well into 2009. The company also expects same-store sales to fall 9% to 11% in the fourth quarter.
Meanwhile, teen apparel retailer Abercrombie & Fitch Co.'s (ANF) same-store sales are estimated to fall 26% in the fourth quarter. The company also sees quarterly earnings below analysts' forecast and slashed its earnings outlook for the full-year 2008.
In addition, Best Buy has cut its full-year forecast, citing "seismic changes" in consumer behavior. Two weeks ago, Circuit City, the second largest U.S. electronics retailer, filed for Chapter 11 bankruptcy, citing vendor concerns about the company's liquidity and ability to pay for its purchases in the current economic climate. Clifton-based Linens Holding Co. also has begun liquidation sales last month after the company was sold to a joint venture that plans to sell off its assets.
Only Firing, No Hiring!
Similar to retailers, upcoming holiday selling season is expected to be equally disappointing for many people who are hoping to work in stores in the season. Analysts are of the view that retail chains would cut back on hiring temporary workers due to the ongoing sales slump and expectations for a dismal season.
Reports quoted John Challenger, Chief Executive of outplacement firm Challenger, Gray & Christmas, as saying, "This could be the weakest holiday hiring season since 2001." According to his firm's forecast, hiring for the October-December shopping months could fall well below last year's 698,300 retail jobs. Industry watchers also expect that stores will push more business online this year and use temporary workers mostly for the weekend shopping rush. Many retailers are cautious with their seasonal hiring.
Is a Quick Turnaround Possible?
Analysts believe that consumers' retrenchment may continue for several years, but the industry will bounce back quickly. "If there is one industry that can respond quickly, it is retail," according to Holub. Perkins believes the road ahead is dark and long, with little to cheer in the coming months.
Meanwhile, Carl Steidtmann, chief economist and director of Deloitte Research - Consumer Business, is of the view that there will be a recovery next year, probably late next year. But the economy will be different. "We have had a consumer-driven economy for 25 years. Now we will have an export and business-led economy," Steidtmann noted.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.