Retailers mix fresh items with bargains

Out with the old, in with the new. As holiday gift cards prod more shoppers into stores this week, retailers are clearing shelves with their traditional deep discounts. But in an emerging trend aimed at plumping profits, they're also making room for fresh, new merchandise at full price.

Part of what's driving the shift is the continuing growth of holiday gift cards that spur late December and January sales.

"We're starting to see stores use deep discounts as a loss leader," said Dennis Tootelian, a marketing expert at California State University, Sacramento. "Then they're bringing in more trendy, new merchandise at full price. People with gift cards are more willing to pay that because they feel like the card is free money."

Stores will have to work hard to convince shoppers like Elaine Kramer. The 42-year-old Woodland resident browsed the steep discounts Wednesday at her local Mervyn's but remained uncommitted to buying anything.

"It's a good day to try to find something," she said. "But I could also walk out of here with nothing."

Retailers are casting about for new marketing strategies in the wake of a holiday season that will likely end as their worst for sales growth in five years. Higher fuel and food prices, tighter consumer credit and jitters from slumping home prices all combined to stifle spending.

The International Council of Shopping Centers on Wednesday said even the last-minute shopping rush before Christmas didn't save the season. It expects November and December same-store receipts, or sales at stores open at least 12 months, to fall slightly below the council's October forecast of 2.5 percent growth for the two-month period.

A post-Christmas buying binge could erase that shortfall but still would be the smallest annual sales increase since 2002.

"Given the slow performance at the beginning (of December), it appears that the industry is on track for a sales gain that is slightly under our original expectation," said council economist Michael P. Niemira.

But retailers' woes are good news for shoppers. Stores today are offering more discounts compared with the same time last year, industry watchers said.

On Wednesday, for example, No. 2 U.S. retailer Target Corp., which announced it expects to see a sales decline during December, lowered prices on popular video games to $37. Mervyn's LLC opened its stores at 6 a.m. with clearance prices such as 60 percent off women's sweaters. Nordstrom Inc. took a third off regular-priced men's apparel. Such sales blow out the leftover holiday merchandise, but at the expense of profit margins.

One retail consultant believes that retailers are beginning to see another possibility for the weeks after Christmas. "More and more I think we'll see stores marketing the same discount message as always after the holiday, but offering more fresh items at full price," said Paula Rosenblum, managing partner of Retail Systems Research LLC, based in Miami. "It's an emerging trend."

Gift cards make it possible.

Americans in the past two months bought 625 million cards worth about $26.3 billion, according to industry estimates. If placed end-to-end, the cards would stretch around the equator once and overlap themselves another third of the way around.

Roughly 10 percent of November-December sales happen the week after Christmas, according to the National Retail Federation, but early January is also gaining ground.

"The old patterns of back to school, Easter, holiday and summer (sales) are changing," Rosenblum said. "Now, thanks to gift cards, people go (holiday) shopping well into January."

Retailers used to loathe gift cards and their paper predecessor, the gift certificate, because accounting rules can make them a headache. A card sale counts as a liability on balance sheets because a merchant can report the revenue only after the card is redeemed or expires. (California and some other states do not allow gift cards to expire.)

Bookkeeping bugaboos arise when a card is sold with no expiration date and the holder does not spend the entire balance, leaving the retailer with a liability on its books, sometimes for years.

About six years ago gift card sales started to surge for several reasons: Technology made it easier to track sales from a card bought at one store and redeemed at another, eliminating a big barrier for national chains. Time-pressed consumers began seeing cards as a middle ground between personal gifts and cold cash. And trendsetter Starbucks started selling them in 2001.

"That really helped make gift cards cool," Rosenblum said.

Gift cards also bring in store customers who might not otherwise set foot inside, she said.

That's certainly true for Donny Kempf, who waited on customers at Snook's Chocolate Factory on Folsom's historic Sutter Street Wednesday and mused about his own Christmas present – a gift card to a store in a Eureka shopping mall.

"I'm really not into the whole day-after-Christmas (thing)," he said, but the $25 card was enough to inspire plans for a five-hour drive up the coast to cash it in.

While gift cards have amazing drawing power, any new post-holiday marketing strategy will always include some discounts, Rosenblum said, because shoppers expect them.

"It's going to be a bit of a crapshoot for the stores for a while," Rosenblum said. "They're still feeling their way."

Markdowns lured Lana Bisson of Sacramento and daughter Amy to Kohl's in Folsom after a tour of the nearby Target. Linens were on Bisson's mind, but she was open to suggestions.

"I'm looking for things for next year," Bisson said, repeating the day's shopping mantra. "Why pay full price next year when I can get 70 percent off today?"

About the writer:

• Call The Bee's Jon Ortiz, (916) 321-1043. The Bee's Jim Downing and Darrell Smith contributed to this report.