Retailers can look forward to holiday sales that are stronger this year than in 2009, but only if they cut prices.


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Price cuts seen as key to holiday sales gains

October 25th, 2010

NEW YORK – Retailers can look forward to holiday sales that are stronger this year than in 2009, but only if they cut prices.

That’s the consensus of industry analysts, who say the anemic economic recovery will dissuade consumers from opening their pocketbooks for Christmas unless they find bargains. Their retail sales expectations come on the heels of deep discounting for the back-to-school season and Halloween.

Both Walgreen Co. and Rite Aid Corp. had disappointing sales in September. Same-store sales edged up 0.4% at Walgreens and dropped 0.9% at Rite Aid.

Walgreens’ comparable-pharmacy sales were negatively impacted by fewer generic drug introductions, a lower incidence of cough, cold and flu, and fewer flu shots. Pharmacy sales accounted for 66.9% of total sales for the month. Generic introductions also hurt Rite Aid’s comparable-pharmacy sales.

CVS Caremark Corp. does not report monthly results, but president and chief operating officer Larry Merlo told analysts this month that the chain’s same-store sales rose 2.5% in the third quarter.

Overall holiday sales will feel weak compared with the relatively strong growth in the first three quarters — a pace inflated temporarily by the economic stimulus and pent-up consumer demand, according to Kantar Retail.

“Prices and uncertainty will weigh heavily on the holiday outlook,” comments Kantar senior economist Frank Badillo. “Ongoing price competition among retailers, led by Walmart, is more likely to take a toll on sales gains than boost unit demand among shoppers who remain value conscious.”

Walmart U.S. president and chief executive officer Bill Simon said at a conference that the company expects “a very, very competitive and aggressive ... price-focused” selling season.

The National Retail Federation (NRF) predicts a 2.3% gain in holiday sales. While that would be slightly lower than the 10-year average increase of 2.5%, it would be a marked improvement from last year’s 0.4% uptick and the dismal 3.9% decline of 2008.

“While many consumers will be wishing for apparel and electronics this holiday season, retailers are hoping the holidays bring sustainable economic growth,” observes NRF president and chief executive officer Matthew Shay. “Though the retail industry is on stronger footing than last year, companies are closely watching key economic indicators like employment and consumer confidence before getting too optimistic that the recession is behind them.”

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