We are right at a week away from the highly awaited Black Friday for 2009’s holiday and Christmas season.  As you likely know, this is THE day that retailers look forward to all year and critically depend upon as an anchor to how each retailer’s full year earnings results turn out.  You may already be tired of Christmas ads and the holidays haven’t even arrived yet.  With over 10% unemployment, a recession-end that doesn’t feel like a recession-end, a very tight discretionary spending budget, and a general lack of consumer confidence, it is no surprise at all that the focus for the Holiday Season in 2009 is one of deals and thrift.

These are not in any particular order, but the promotions have been reviewed at Wal-Mart Stores Inc. (NYSE: WMT), Best Buy Co. (NYSE: BBY), Costco Wholesale Corporation (NASDAQ: COST), Target Corp. (NYSE: TGT), Kohl’s Corp. (NYSE: KSS), Gap Inc. (NYSE: GPS), Macy’s, Inc. (NYSE: M), and Nordstrom Inc. (NYSE: JWN).  There is also already promotion between MasterCard Incorporated (NYSE: MA) and Amazon.com Inc. (NASDAQ: AMZN).  Admittedly, this is just a sampling of major outlets.

What is amazing is just how much of the deal-making is already out before the holiday season starts as retailers key off of each other.  It is almost impossible to avoid thinking how such a promotional Christmas and Holiday Season in 2009 is going to add pressure to margins at almost all the first-line retailers.

Wal-Mart Stores Inc. (NYSE: WMT) is offering many shipments of electronics for an add-on price of a mere $0.97 for many electronics items.  It is also hard to not notice the Holiday Time Pre-Lit 6.5′ White Colorado Pine Artificial Christmas Tree with multi-color lights for a whopping $35.00…. or if you are really pinched and already have a bunch of lights you can get the Holiday Time Unlit 6′ Welsley Pine Artificial Christmas Tree for $20.00.  As always, you can expect that Wal-Mart will be using those toys as a loss-leader to get people in to keep Toys-R-Us at bay.  And a $248 Emerson 32″ LCD HDTV.

Best Buy Co. (NYSE: BBY) must be just absolutely flooded with TV’s… that or it knows this is a hell of a way to give you a TV and sell you game systems, recorders, accessories, and of course a wall-mount and installation…. 32″ class flat panel HDTV’s starting at $299 and 40″” class  flat panel HDTV’s starting at $499…. And if you just have to have a netbook, you can buy an entry-level Asus -Eee PC netbook with an Intel Celeron processor for $249.99.

Costco Wholesale Corporation (NASDAQ: COST) is far from immune, despite a box-club membership store that used to cater almost exclusively to upper-middle class and higher shoppers.  It was a shock when the retail giant announced it would start accepting food stamps.  Costco is offering a 40″ LCD HDTV for $499.99.. after $100 off.  They also offer an Acer Aspire One 10.1″ Netbook Intel Atom processor for $289.97.

Target Corp. (NYSE: TGT) is offering free shipping for online purchases of $50.00 or more on 100,000 items.  Target even looks like it has a $3 appliances deal for toasters, coffee makers, and slow roasters… Target’s Daily Deals can be found here.  They even started the pre-holiday discounting on many toys weeks ago.

Kohl’s Corp. (NYSE: KSS) is winning in its efforts for the quasi-trade-down.  The company has listed a Christmas Kickoff Sale with 30% to 50% off selected outerwear and accessories. It also noted 50% to 60% off selected diamond jewelry.  And as far as the shipping gimmick, that is “3 Days Only! FREE Standard Shipping when you spend $50 or more (ending Saturday).

At Gap Inc. (NYSE: GPS), the company has an “online exclusive, limited time only get 25% off your entire purchase on regular priced merchandise valid from November 17, 2009 through November 22, 2009.  It also has free shipping on orders of $50 or more.

MasterCard (NYSE: MA) and Amazon.com Inc. (NASDAQ: AMZN) are offering special promotions on Facebook for specialized gift card offerings to your friends.   Amazon.com is also offering some free select shipping as a gimmick for selected items over $25.00.  You can see Amazon’s TODAY’S DEALS each day here.

Macy’s, Inc. (NYSE: M) is offering free shipping on $99 purchases sitewide (online).  Macy’s is also said to be offering $10 off coupons and 10% off for all Macy’s cardholders shopping over the long Thanksgiving holiday weekend. Nordstrom Inc. (NYSE: JWN) has effectively matched Macy’s with free shipping on orders of $100 or more.

As this is still a week out, it is possible that even more promotional ads and promotions will come on that have not even yet to be decided.  Throw in regular price-matching wars with Wal-Mart and Target (and others) and this is going to be one of the biggest cut-throat holiday season for retailers we have seen in years and years.

What is obvious is that you never know how the top-line revenue figures will come in for the holidays until after Black Friday and until we get into the weekend figures after Thanksgiving.  But what is also obvious is that retail giants have just boxed themselves into a very low margin holiday season.  It is no wonder that almost all retail executives have been very shy and conservative about predicting the outcome of the holiday quarter ahead. Considering that this is the quarter retailers are supposed to thrive and post significant earnings, that only adds caution regardless of how well the public turns out to buy things this year.

The good news is that the retail environment, both brick & mortar and online, are going to be heavily promotional.  That is great for you and me as consumers who likely have to buy gifts this holiday season.  The flip side here is that the heavy promotion and price-sensitivity of both retailers and consumers is going to put a real squeeze on margins this Holiday Season for just about all of the first line retailers.  Barring a pre-Christmas stimulus or barring a sudden change in consumer sentiment that doesn’t appear to be coming, it seems that the run-up seen in many key retailer stock prices is going to be exponentially more difficult to see a repeat near-term until many share prices are more reasonable.

JON C. OGG
NOVEMBER 19, 2009

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