Retail season starts strong, but a long haul ahead

In Rochester, N.Y., the roads were clogged at 4 a.m. last Friday as shoppers hit the malls looking for bargains. In Burlington, Mass., it took as long as 25 minutes to find a parking spot early that day. And at Lenox Square in Atlanta, throngs of shoppers hunted for discounts at shoe retailer Nine West.

Yes, Americans love the sound of 40 percent off. The deep discounts and promotions, retail analysts believe, were successful at getting Americans to open up their pocketbooks on Black Friday, one of the biggest shopping days of the year. Sales rose 3 percent above 2007 levels – better than expected, according to ShopperTrak RCT, a tracking firm based in Chicago.

But will the throngs be back in mall parking lots for the weeks before Christmas?

"Black Friday was strong because it always is. This is the starting gun," says Richard Feinberg, a professor at the Purdue Retail Institute at Purdue University in West Lafayette, Ind. "But this is a marathon, and by the 20th mile, consumers will be out of steam."

Even ShopperTrak warned that the decent Black Friday numbers may not last through the season.

If consumers do start to fade, it will be another blow to the economy, which has already been hit hard by the decline in housing prices, the stuttering stock market, and rising unemployment.

"This could be the worst holiday period since 1982, when we were coming out a recession," says Mark Zandi, chief economist at Moody's Economy.com. "That means the first half of 2009 will be very, very tough."

Retailers count on a big pickup in sales during the holidays to help them the following year.

"Take Macy's. When their sales aren't so strong, they won't hire as many people next year, or expand as much or buy as much merchandise," explains Mr. Feinberg of Purdue. "There is a longer-term negative effect than simply what will happen this quarter."

On Friday, the National Retail Federation tried to remain positive about the outlook. It still expects a 2.2 percent increase in holiday spending over last year, says Scott Krugman, a spokesman for NRF. Before any lowering of that projection, he says, "we want to see how Black Friday plays out and the first half of the [holiday shopping] season."

Retail activity was busiest in the South, where it was up 3.4 percent, and in the Midwest, up 3 percent, according to ShopperTrak. The slower areas, ShopperTrak said, were the Northeast, up 2.6 percent, and the West, up 2.7 percent.

"Under these circumstances, to start off the season in this fashion is truly amazing and is a testament to the resiliency of the American consumer, and undeniably proves a willingness to spend," Bill Martin, ShopperTrak's cofounder, added in a statement.

One ray of sunshine for retailers is the falling price of gasoline. Since its peak in July, gasoline prices have fallen $2.21 a gallon to an average US price of $1.81 a gallon, according to GasPriceWatch.com.

"It takes a bit of the edge off," says Mr. Zandi. "But if you don't have a job, you're not [driving] to work."

Americans are likely to get an additional shock this week when the US Labor Department reports the unemployment rate for November. Normally, retailers beef up their staff with temporary hiring during the holiday shopping season. But this year, such seasonal hiring is not happening, says Nigel Gault, chief US economist at IHS Global Insight in Lexington, Mass. As a result, the unemployment rate could jump from 6.5 to 6.8 percent, IHS predicts. Job losses for the month could total 370,000, the worst employment numbers since May 1980, Mr. Gault says.

"It's very rare to get jobs falling as sharply as that," he says.

The job losses in the Midwest could be particularly devastating, Feinberg says. In Indiana alone, he says, 27,000 people could lose their jobs. "[Indiana's] unemployment is already above the national average, and spending is way down," he says. "Most of the spending is going to Wal-Mart, Costco, and other discounters to make money go further."

Discounts resonate with a lot of consumers. In Rochester, N.Y., Marcia Layton Turner was on the road at 4 a.m. on Friday to shop at Bon-Ton, a department store, and other retailers offering discounts. "It was a madhouse," she recounts.

Ms. Turner, a bestselling author, got what she was looking for. She purchased an $80 comforter for $19.95, some $60 sweaters for $19.97 each, and holiday ornaments at about 60 percent off.

Still, she expects to spend a little less than last year. "I'm trying to be practical and not go crazy," she says.

She and other shoppers will have less time to shop this year because there are only 27 shopping days between Thanksgiving and Christmas. Last year, there were 32. ShopperTrak believes that retailers may have to continue their deep discounts until the Saturday before Christmas.

At least the weather appears to be cooperating. According to AccuWeather.com meteorologist Alan Reppert, it appears that the Midwest and East Coast will experience temperatures 4 to 6 degrees F. below normal through the end of December. Colder temperatures tend to put shoppers in the mood to buy winter apparel. Meanwhile, the Plains states are expected to have normal temperatures, as will the Southeast. And the West Coast could be warmer than normal. In terms of precipitation, only the Great Lakes and some parts of the Pacific Northwest could have higher than normal amounts.