Shoppers may have the upper hand this Christmas

NEW YORK -- The Christmas shopping season doesn't kick off for another six weeks, but retailers already are signaling they're prepared to discount aggressively to entice shoppers still skittish about spending.

Gift buyers are likely to scrutinize every purchase, from $20 toys to $1,000 designer jackets, do their homework before they buy, and limit how many stores they visit.

That could put stores in a jam this year because for many, deadlines for holiday orders were in spring when the economic recovery looked more solid. Since then several indicators and consumers' collective mood have darkened.

Retailers aren't expecting a flashback to 2008, when they were stung by shoppers who drastically cut spending after the financial meltdown. Stores had to mark down items as much as 90 percent to clear them out. That left an imprint on 2009, when retailers managed to stay profitable amid sluggish sales by stocking fewer items, creating shortages in certain standbys like strands of Christmas lights. This year, erratic spending has made it hard to strike the right balance of how much to stock as the recovery has lost steam.

Most forecasters don't expect shoppers to spend much more this year than they did during last year's tepid season. Sales rose only 0.4 percent over 2008, when they slumped 3.9 percent, according to the National Retail Federation's calculations.

"The consumer is being very restrained. They're closely planning their spending and continue to reduce their shopping trips," said James Russo, vice president of global consumer insights at The Nielsen Co.

Many retailers say they're ready to tweak orders where they still can or sharpen discounts to adjust to erratic spending. It's tricky because many holiday orders are usually made six months to a year in advance.

A lot is riding on holiday sales because they account for up to 40 percent of annual revenue for many retailers. For toy merchants, it's up to 50 percent.

J.C. Penney Co.'s Chairman and CEO Mike Ullman told investors last month that the department store chain was prepared to discount this Christmas season to bring shoppers in, after holding back a little last year.

"I think this year we have chosen to take a bit more pricing liberty," Ullman said.

Bill Simon, CEO and president of Wal-Mart's U.S. business, told investors at another conference a few weeks ago: "We expect a very, very competitive and aggressive Christmas and holiday selling season."

Retailers reported surprisingly strong September sales on Thursday, fueled by a better back-to-school shopping season. That's particularly encouraging because the gains are being compared with the return of positive revenue figures that started a year ago. That's likely to boost stores' holiday spirits a bit. But those sales were spurred by aggressive discounting, and so worries remain until Christmas shopping hits high gear.

The spending patterns for the back-to-school season underscore the purposeful buying that has defined shoppers since the Great Recession. They came out to buy back-to-school items for the first two weeks of September, resulting in strong sales, but pulled back the last two weeks of the month after they bought what they needed.

Similarly, stores expect many shoppers will stick to their Christmas lists and hold out until the last minute for the best deal.

Although fears that the economy might fall back into recession have eased in recent weeks, Americans haven't seen much tangible improvement since last Christmas. Unemployment is still stuck at almost 10 percent. Credit remains tight, crimping shoppers' ability to spend, and home values are still falling in many U.S. markets.

No wonder analysts say they see a growing divide among consumers.

"There is a sharp cleavage of those with full-time jobs, who are returning to spending on discretionary items, though cautiously, and the others without full-time jobs, who are spending solely on need," said Craig Johnson, president of retail consultancy Customer Growth Partners.

John Long, retail strategist at Kurt Salmon Associates, says shoppers will be looking for gifts that "exude practicality and smarts." He and others predict smart phones and e-readers, particularly Apple Inc.'s iPad and iPhone, will be hot. So will Sony Corp.'s Playstation3 Move controller and Microsoft Corp.'s Kinect, which both let video-game players control characters in a game with body movements, similar to the Nintendo Wii.

Russo expects merchants may see surprisingly strong sales of discretionary items such as clothing, toys, books and even vacations, fueled by shoppers with household incomes of $100,000 or more. Still while luxury shoppers are holding up much better, Neiman Marcus and several other upscale stores have reported erratic sales amid wild swings in the stock market.

The NRF expects a 2.3 percent increase to $447.1 billion. That would fall short of the 10-year historic average of 2.5 percent, according to National Retail Federation calculations.

The forecast is in line with other economists who predict holiday sales growth of about 2 percent to 3 percent. A 4 percent sales gain is considered healthy if inflation is low, as it is now.

"It's not optimistic, it's not pessimistic, but very realistic," said Matthew Shay, NRF's president.

At Wal-Mart, whose blue-collar shoppers are having a harder time stretching their dollars to the next payday, the world's largest discounter is going for the extremely practical: holiday shoppers will find big piles of practical basics such as socks, sleepwear and underwear, and fewer trendy jeans and holiday sweaters.

Such basics will likely resonate with consumers like Muna Abdushukui, 29, who lost her job working in a gift shop two months ago, and has had a hard time finding work.

Abdushukui, who was at the Mall of America in Minneapolis recently with her 3-year-old daughter, said she's just sticking to the necessities.

"I'm buying food," she said.