American retailers' Christmas wish

THE holiday shopping season is always vital for American retailers but this one takes on added weight as analysts believe a weak Christmas could be the death knell for some big names, thus prolonging recession.

Analysts say overcapacity and tight-fisted consumers could send some firms the way of Montgomery Ward, one of America's oldest retail names that closed its doors for good after a miserable holiday period last year.

'There's too much retail capacity. Too many new stores have come on strong in the past few years and not enough weaker, old ones have disappeared,' said Cynthia Latta, senior economist for DRI.

A handful of discount retailers, such as Wal-Mart and Circuit City, are racking up healthy sales gains as US shoppers seek bargains. Wal-Mart posted its one-day sales record of $1.25bn (£880m) the day after Thanksgiving.

But even Wal-Mart has had to trim profit margins on many items to attract customers by heavily promoting sales and discounts in nationwide advertisements. Usually, retailers do not offer big price promotions until nearer Christmas, and only then when sales are slow, but this year they have appeared early. 'This is a year of great deals for consumers,' said one retail analyst. 'Sales are up, but retailers aren't making much.'

A poll by America's Research Group found 81.7% of shoppers bought only advertised specials. For giant chains with a reputation for low prices, such as Wal-Mart and Target, the promotions are working. But for those with higher prices to begin with, discounts have not generated a surge in business.

In America, most speciality shops - such as The Gap, Victoria's Secret, The Limited-Kay Jewelers - are located in shopping malls, while the big discount chains are stand-alone megastores. While some discount stores reported lines of customers at opening time during the first weekend of holiday shopping, mall traffic was down 8.3% on a year earlier, according to Chicago's RCT Systems, which tracks retail data.

The US economy shrank about 1.1% in the third quarter. However, decent spending by consumers in the final month would rev up new orders, which in turn would revive factory production.

There is one unlikely bright spot - the internet sector. Early data show e-commerce activity off to a somewhat better-than-expected start, according to Merrill Lynch analyst Melanie Begelman. Her analysis of Amazon.com's 'Delight-o-Meter', which tracks items sold worldwide, showed daily volume sold in the past few weeks 20% to 30% higher than last year. AOL and Yahoo! also reported better-than-expected activity in recent weeks.