Black Friday Sales Increase But Profits Fall

The beginning of the holiday shopping season was much better than retailers predicted, but profits were hurt by bargain basement prices, analysts said.

Typically, holiday sales account for 25 to 40 percent of annual sales for retailers, but those numbers are expected to decrease greatly as the economy is mired in recession and consumers rein in spending.

To lure in shoppers stores offered unprecedented discounts. ShopperTrak, an industry analyst, said that on Black Friday sales increased by 3 percent over the year before. But, with prices slashed to such great extents, retailers’ profits are still behind.

“You’re looking at discounts of 50 to 70 percent off,” said Matthew Katz, managing director in the retail practice of Alix Partners, an advisory and restructuring firm. “You have to sell two to three times as much to break even.”

Another bad sign for retailers was the fact that foot traffic in stores dropped significantly after Black Friday. On Saturday there were 16 million less shoppers in stores, according to the National Retail Federation.

Industry projections do not offer much comfort for retailers either. Some analysts are expecting sales for the entire shopping season to be down by as much as 10 percent.

Source The New York Times:

Sales in the nation’s stores were strong over the weekend, to the relief of retailers that had been expecting a holiday shopping period as slow as the overall economy.

But while spending was up, there were troubling signs in the early numbers. The bargains that drove shoppers to stores were so stunning, analysts said that retailers — already suffering from double-digit sales declines the last two months — would probably see their profits erode even further.

Source: Economy in Crisis

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