More Retailers with Depressed Margins to Join Best Buy

Best Buy Co Inc. (NYSE:BBY) is the first retailer to report declining margins as merchants look to deepen consumer discounts this holiday shopping season.

On Tuesday, Best Buy reported that its third quarter earnings missed analysts expectations from discounting and saw the market respond with a 15% share drop.

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The electronic relations is the first one to report earnings that includes “Black Friday” numbers. With more retailers making their reports with these figures, additional poor margins will be seen.

Joel Bines, Managing Director of consulting firm AlixPartners said of the news, “I think Best Buy is the canary in the coal mine. I think we’re going to hear retailers across all categories, with the exception of luxury, reporting depressed margin for the holiday time period.”

Wal-Mart Stores Inc. (NYSE:WMT) has already set expectations by recently estimating margins decline from discounting with the continued high unemployment numbers and current economic concerns leading consumers to look for deals.

According to Reuters, Wal-Mart’s gross margin is forecast to drop to 24.5% this quarter as compared to 25.1% from the previous year.

Analysts have forecast that the following retailers will also see declines: Gap Inc (NYSE:GPS), 32.7% from 38.2%; J.C. Penney Co Inc (NYSE:JCP), 36.7% from 37.6%; Macy’s Inc (NYSE:M), 41% from 41.3%; and Abercrombie & Fitch Co (NYSE:ANF), 60.1% from 63.6%.

Along with a strong Black Friday and Cyber Monday, the National Retail Federation had forecast a 2.8% sales increase for November and December as compared to 2010’s 5.2% holiday season increase. However, on Tuesday, the trade association said it is re-evaluating its forecast.

With Christmas approaching, more deep discounts are expected.

John Long, retail strategist for Kurt Salmon said, “Consumers are really waiting for another spate of deals as strong as Black Friday and Cyber Monday to really get them off their couches. As we get further and further into the holiday season, that’s what consumers are still responding best to.”

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