In the late 1960s, the Philadelphia police coined the phrase “Black Friday” to describe the horrific traffic conditions, both vehicular and pedestrian, the day after Thanksgiving.

More recently, beginning in the early 1980s, it became associated with retailers because of the huge flood of sales that will put them “in the black” in terms of their bottom line.

Discounts are going to be steep this year – they have to be – as crippled retailers make a feeble attempt at salvaging what they can of their bottom lines. Those that are lucky enough to have a line at all.

Retail relies on our credit system

Let’s start at the beginning.

Though customers often times use credit cards for their purchases, this is not the type of credit that will drastically affect this shopping season. Instead, we are looking at a touchy situation with credit lines to the stores themselves.

I believe our readers are probably well aware of this, but I would like to make the brief point that retail merchants typically do not pay cash for products to stock their shelves. They make these massive purchases through credit lines.

Many analysts, such as Britt Beemer (an analyst for America’s Research Group) are coming forward with predictions of a pathetic holiday season in terms of retail revenue. His prediction of a 1% decline in sales this holiday season doesn’t sound like much, but it’s the first negative estimate he’s made in 23 years.

Disheartening forecasts such as these make already wary credit companies even more hesitant to lend their money to stores for fear of default. Those that are able to obtain credit are likely to have more stringent terms, higher rates, or some combination thereof.

This puts yet another unwanted strain on retailers that are already hanging by a thread.

Dangerous territory for retail stores

Unfortunately, CBS was unable to acquire the rights to “Retail Survivor: Who Will Be Left After Christmas?”

Regardless, Circuit City – which may not be pushing warranties as much as usual, given that it’s tough to have faith in a company that’s giving its farewell performance this holiday season – has already been voted off the island, and there may be more to come.

With merchants walking the tightrope (and possibly the plank), they’re going to have to introduce some serious sales incentives in order to lure customers into their stores and attempt to bring their revenues to a respectable level.

The problem is that even if retailers are able to move their products as well as they hope to, they need to find a way to extend the buying past November 28th. Massive sales may seem appealing to consumers, but if prices return to normal the day after, there will be tumbleweeds in the aisles for the remainder of the season.

This would spell disaster, and I would expect that many chains will extend sales into December.

Malls getting mauled

Spending less this year is a given for most people, but how this translates to retailers could have profound implications. Stores such as Wal-Mart stock nearly every item one could imagine. They are going to see quite the flood of consumers this year as people forego wandering around the mall and instead opt for one-stop discount shopping.

One measure some managers, such as Tanger Outlets owner Steve Tanger, are taking is opening their entire strip malls earlier than usual. Tanger Outlets will be opening their doors at midnight, some others are opening at 11pm or even 10pm Thursday night.

Discount outlets such as Tanger may have less to worry about because their prices are already low. However, other retail malls could see major issues as individual stores unable to conjure up funds for rent are forced to close their doors, leaving vacancies, lower revenue for the owners of mall real estate, and a decrease in consumer traffic through these shopping centers. This is a chain reaction that is rightfully stressing out merchants as we enter the two months where they are supposed to generate nearly 50% of their sales.

Some contrived glimmers of hope, anyone?

The past few days of rallies in the stock market could have a positive effect on shopper psyche this Friday, as a glimmer of hope in a dismal market may lure shoppers into believing a turnaround is possible. And hence, they might actually be able to afford to make a few purchases.

For the most part, the discounts offered by stores on Black Friday draw large groups of bargain shoppers who trade their patience and sanity for lower prices as they battle the crowds. This year, although there is a prediction of a 3% to 5% reduction in the number of shoppers that will subject themselves to the pushing, shoving, and other generally inconsiderate behavior people tend to exhibit, a case could be made for more people venturing out of their homes this Friday. People who normally will not give up their blood pressure in exchange for a 75% off sign may change their minds based on how tight their budgets may be.

Also, as gas prices have plummeted in the past month, there might be a little more spending money to go around. Right? Maybe?

These are admittedly weak arguments, and I personally believe that this holiday season will not be full of cheer for anyone in the retail industry. Aside from the state the equities market is currently in, what keeps looming over us is the glaring reality that there have been massive job losses, and there will absolutely, positively, be more to come. Especially when the retail sector takes a hit in the next month or so and enters the weak, merchandise-returning months of January and February, we can expect stores to require less and less staff as a matter of practicality.

Either way, I doubt that there will be record-breaking sales for any company besides Wal-Mart, and the high probability of homemade gifts will put quite a thorn in the side retailers this year.

John K. Whitehall
Analyst, Oxbury Research