Is the Holiday Season Looking Bleak for Retailers?

Fighting for the limited consumer dollars that are available this holiday season is taking a bite out of retailer (NYSEARCA:XRT) profits. Many stores are being forced to slash prices, offer free shipping, increase advertising and ramp up their sales force to try to win their share of business this year. All of this while gross margins at U.S. retailers are expected to fall 4% due to increased labor, product and transportation costs.

Reuters quoted Jeff Van Sinderen, a senior analyst at B. Riley & Co., who said, “If you’re not promotional and you don’t have great product, I think you’re going to have a very challenging time this holiday season.” While the number of consumers hitting stores on Black Friday is up 10% from last year, retail industry experts do not expect to see much growth in sales above inflation.

Patty Edwards of Trutina Financial Partners told Reuters that retailer concerns are “part of the reason you are seeing the catfight over Black Friday. If you are going to open five hours earlier, okay, I’ll open six hours earlier.” The calendar may also cause consumers to hold out for bigger price cuts.

Reuters’ Jessica Wohl writes, “There are five Saturdays between Thanksgiving and Christmas this year, after just four last year, when Christmas fell on a Saturday. With Christmas landing on a Sunday this year, shoppers have a chance to buy last-minute gifts that could be discounted by chains that did not see stellar business earlier in the month.”