“Black Friday” — the day after Thanksgiving that signals the start of the holiday shopping season in the U.S. — was particularly charged this year, marked by midnight store openings and brawls over scarce sale items. Despite the hoopla, retailers are expected to post only modest gains this month, according to Wharton faculty and retail analysts. A key problem, they note, is that shoppers continue to procrastinate on holiday purchases, despite highly visible, early-season marketing promotions.

“One reason for procrastination is the hope that prices will drop further as Christmas nears … and in fact, the retailers have been training consumers to think like that by dropping prices closer and closer to Christmas and focusing on price specials,” says Wharton marketing professor Barbara Kahn.

This year, however, the retail attitude about procrastination has shifted. “Retailers are trying extra hard [to attract early shoppers]. They’ve been using promotional tactics — almost gimmickry — from the very get-go to try to capture their share of holiday sales. There’s always a lot of this going on each year, but I’d say this year is above average,” says Wharton marketing professor Stephen J. Hoch.

Christmas falls on a Monday, leaving an extra weekend for procrastinators to hunt down last-minute gifts. Fearing many shoppers would wait until the last minute, retailers attempted to jumpstart the selling season with dramatic promotions over Thanksgiving weekend. Some stores opened for business at midnight on Black Friday — so-called for its tendency to leave retailers “in the black” because of that day’s high sales volume.

Wal-Mart, the world’s largest retailer, set the tone for Black Friday with deeply discounted promotional prices on such items as plasma televisions and video game consoles. At the same time, Hoch notes, Macy’s has been consolidating its new department store acquisitions throughout the country and is pushing hard with promotions to build its brand name among moderate- to high-end shoppers.

With those two players turning up the heat at both ends of the income spectrum, the vast swath of retailers in between were forced to respond with their own promotional tactics, he says. “At the end of the day, retail is a market-share game. Any sale a retailer gets now is a sale they don’t have to fight for later and a sale their competitor can’t get,” says Hoch. “It is a situation that just escalates.”

William Cody, managing director of the Jay H. Baker Retailing Initiative at Wharton, says the Black Friday markdowns and early-bird store openings do not appear to have provided retailers with enough momentum to drive exceptionally strong sales over the full holiday season. Overall, retail sales are expected rise by just 2.5% for November and December, compared to 3.6% last year, the International Council of Shopping Centers (ICSC) predicts. The forecast was revised downward from 3% after retailers reported slack sales in November. “There are only so many levers you can pull, and this year [retailers] pulled the lever on price early and went over-the-top on store opening times,” Cody says.

New York retail consultant Howard Davidowitz suggests that retailers outsmarted themselves with the heavy promotions on Black Friday. “The result was not good because the customers stood in line, then they poured in and cherry-picked the inventory,” he says. “The retailers overspent for too little.”

The most important selling days are closer to Christmas, he says, with Saturday, December 23, likely to be the most critical. “Now we’re in a lull. Business is soft because the retailers already fired off all their nuclear weapons, and the customers are just waiting them out.”

Wal-Mart’s aggressive posture, for example, may not have paid off. Sales at Wal-Mart stores open for more than a year fell 0.5% in November. “Wal-Mart coming out of the gate aggressively on price speaks to what the season has been like,” Cody notes, “but if you look at the performance of Wal-Mart in November — and some key direct competitors — price isn’t the only thing consumers are after.” In fact, a telephone poll conducted by American Research Group of Manchester, New Hampshire, found shoppers less focused on bargains than in the past. This year, 33% say they will only buy gifts on sale, down from 75% in 2005.

Michelle Tan, a retail analyst at UBS in New York, agrees that consumers seem less focused on price alone. “The customer has little price resistance if the product is right. If they don’t like it at full price, they’re not tempted to buy it at 40% off, either.”

A Spending Slowdown

Holiday sales are important to retailers and the overall economy: Last year, 32% of the retail industry’s profit and 27% of its sales came in the period between November and January, according to ICSC. Consumer spending accounts for two-thirds of U.S. economic activity.

Michael McNamara, vice president of research and analysis at MasterCard SpendingPulse, says consumer spending has been decelerating since the early part of the year. Heading into the holiday season, it was running at 4.5% above the prior year’s growth — only half as strong as in 2005. November retail sales, excluding autos, were up 3% this year compared to 8.3% last year.

McNamara says higher interest rates, rising gasoline prices and weakness in the housing market are the main reasons for the spending slowdown. He notes that even though gasoline prices moderated this fall, it takes time for consumers to change their driving behavior.

Within retail segments, McNamara reports that consumer electronics sales were strong at the beginning of the holiday shopping season, but furniture and other home-related goods are experiencing double-digit declines. Appliance sales may also be off, which could moderate gains made by electronics retailers on hot-selling video game consoles and digital cameras.

Apparel sales do not traditionally kick into full force until the last week of the season, when 25% of holiday clothing is purchased, says McNamara. Jewelry sales also come late, with 34% occurring in the last five days of the season. “That’s when the real panic sets in.”

Tan notes that department stores and other retailers have been conservative about their own buying this year. Consumers who wait too long for last-minute bargains may be disappointed, she says.

Planned Scarcity?

The 2006 holiday shopping season has been marked by scarcity of a few highly sought-after products, notably video game consuls — Sony’s PlayStation 3 and Nintendo’s Wii. At some stores, fist-fights broke out among customers who had stood in line for hours over the Thanksgiving weekend to buy just a handful of heavily promoted items in stock. Consumers will continue to hunt for these items, but if they weren’t willing to brave the early crowds, they will most likely need to revise their Christmas wish lists.

While some cynics may believe the shortages are concocted to generate buzz around certain products, retail experts argue there is little incentive for retailers to withhold items that are available, because their competitors will simply put the goods out on their own shelves. And manufacturers have little power to engineer scarcity since they must use retailers as the final step in their distribution chain.

“I’d turn the question of scarcity on its side and ask if there is scarcity across the board, or is it finally the case that some manufacturers in the games and electronic activity space have figured out the holiday season is a good time for a product to launch,” says Wharton marketing professor David Schmittlein.

Attempting to manipulate demand can be a double-edged sword, he adds. On the positive side, a gift believed to be in short supply may be valued more highly by the recipient. At the same time, a shopper who perceives an item will be difficult to find may decide to shop for something else without ever trying to learn whether the original choice really is unattainable.

If an item is genuinely in short supply, there is no downside for retailers and manufacturers to encourage hype about a scarce product, he says. “You’re not going to lose sales, and hopefully the buzz will carry over long enough for people to be interested when shipments are available.”

Wharton marketing professor David Reibstein notes that the shortages do seem more pronounced this year, although he, also, says the notion of calculated scarcity is probably overblown. “What most people don’t realize is just how difficult it is to do any of this forecasting and to know the level of demand and the cost of being overstocked. There is always a big question: ‘Am I better off having too much, or too little?'”

Options for Tardy Shoppers

Faced with diminished inventories and with the holidays just around the corner, where can procrastinating shoppers turn? One option seems to be gift cards, a growing part of the holiday sales picture. The National Retail Federation predicts gift card sales will total $24.8 billion this holiday season, up $6 billion from 2005. The average consumer will spend $116.51 on gift cards, compared to $88.03 last year, according to a survey by BIGresearch for the retail federation.

Hoch says gift cards are now an established part of the holiday spending equation. “This year, you’re not hearing as much about gift cards. They’re not as novel as they were, but I think it’s pretty clear that business is brisk. It may not be growing as much as it was, but it’s still brisk.”

Online sales also continue to account for an increasing share of holiday spending — and online retailers are becoming more adept than some of their brick-and-mortar competitors at adapting to consumers’ procrastination.

According to comScore Networks, consumer online spending at U.S. sites for the 2006 holiday season through December 8 reached $15.6 billion, a 25% increase over the same period in 2005. On Black Friday, consumers jammed Internet sites in search of bargains in cyberspace. Walmart.com was disabled for much of the day.

Although avoiding last-minute decisions is critical for online shopping — consumers need to allow enough time for shipping — online stores are encouraging early orders with free shipping offers and extending their order deadlines for Christmas delivery beyond what they were in the past, sometimes as late as December 19.

Tan notes that this holiday season seems to reflect a maturity in some retailers’ ability to blend in-store and online operations. For example, customers are able to see colors and quality in the store, but order items online, or return online purchases to stores. Gap, among others, is offering the same discounts at both its physical and online stores, allowing consumers ultimate shopping flexibility.

Hoch agrees with Tan’s observation. “Obviously, the Internet allows people to substitute one channel for another, but for retailers who get it right, the Internet and stores are actually very complementary. It can work to a retailer’s advantage, but not everybody is going to win.”