Wringing out some sales
With customers counting every penny, merchants turn to special offers
Free haircuts. 99 cent lattes. $10 Barbies.
Beleaguered merchants are trying to pry open the wallets of shell-shocked consumers with promotions so aggressive that it feels like the holidays have come two months early. The flurry of deals has intensified as the financial maelstrom spreads and nervous shoppers rein in spending.
"Most retailers are just hunkering down and trying to stay in the black and hoping their sales can equal last year," said Jon Hurst, president of the Retailers Association of Massachusetts. "It can't get much worse."
To be sure, yesterday, major retailers reported abysmal sales for September and slashed estimates for a holiday season that was already expected to be the worst in decades. September sales for stores open at least a year, a measure of retail health, plummeted 12.4 percent at J.C. Penney Co. and 6 percent at American Eagle Outfitters Inc. Even luxury merchants took a hit, with sales plunging 10.9 percent at Saks Inc.
Discounters were the only bright spot. BJ's Wholesale Club Inc. in Natick reported sales soared 10.4 percent at stores open at least a year. Wal-Mart Stores Inc., the world's largest retailer, reported a 2.4 percent increase in same-store sales, although this fell below Wall Street estimates. Target Corp., however, reported a 3 percent drop in same-store sales, worse than analysts expected.
"I've never seen anything like this before. Adjusting in this kind of economy is like learning to fly without wings in the dark," said Luciano Manganella, who runs the 344 clothing chain, which has seven stores in Massachusetts. "Making money in this environment is a dream from the past."
As a result, over the past few weeks Manganella introduced new promotions, including $25 off for students who make purchases over $100 and 50 percent off a second pair of jeans when the first pair is purchased at full price.
Merchants' deals come as consumers cut back. Consumer spending, which accounts for nearly two-thirds of the economy, grew slightly earlier in the year but fell in June and July at an annualized rate as shoppers faced the increasing pressures of higher gas and food prices, falling home values, and tight credit conditions. Most economists are projecting consumer spending will drop by at least 3 percent during the third quarter, making it the first quarterly decline in 18 years.
"Discretionary spending looks to have come to a halt," said Ken Perkins, president of Retail Metrics Inc. in Swampscott. "Given the pressures they are currently under, it is going to take more prodding than ever in the form of discounts to get them to spend this year."
For many struggling merchants, the nightmare on Wall Street could not have come at a worse time. The holiday shopping season, typically defined as the last two months of the year, is when retailers can take in between 25 and 40 percent of total sales for the year. Merchants often plan a year ahead, stock up for months, and introduce holiday sales.
Having a good Christmas has never been more important for retailers. Now that it is harder to borrow money, merchants will need to show strong sales to persuade lenders they will be able to repay any loans they take out to cover inventory, payroll, or other business operations.
Hurst, with the Retailers Association of Massachusetts, predicts merchants statewide will mostly have a flat holiday. Some retailers, particularly those in the home goods sector, may even see a double-digit drop in sales. In better times, merchants usually enjoy a 3 to 4 percent jump in sales.
Retailers, bracing for what may be a difficult holiday season, are rolling out deals earlier this year. Last week, for instance, Wal-Mart unveiled plans to cut 10 toys to $10 and several days later, KB Toys Inc. launched a similar promotion featuring toys for $10.
Jennifer Hughes of Milton recently stopped at a Dunkin' Donuts in Canton after seeing the chain's new promotion for 99 cent lattes on weekdays between 2 and 5 p.m.
"I find I'm cutting out more coupons and downloading them from the Internet. I have $20 worth of coupons in my purse right now for CVS," Hughes said. "Everything adds up."
The Canton-based coffee chain is also offering a 99 cent egg and cheese sandwich with the purchase of a medium hot coffee through November. Frances Allen, brand marketing officer for Dunkin' Donuts, said the company unveiled these deals nationally as a way for Americans to treat themselves "without blowing the lid off their budget."
After several customers who were laid off from their jobs recently canceled appointments, Mitch DeRosa, owner of the Mitchell John Salon in Boston, decided to offer any current client who lost their job one free haircut (usually priced between $75 and $150).
DeRosa, whose clients work at Putnam, Fidelity, and other firms that have taken a beating following the collapse on Wall Street, said he is considering expanding the promotion to new customers and offering other discounts, too.
Following the burst of the tech bubble, DeRosa lost around 100 clients, more than 5 percent of the business. He wants to be better prepared this time around.
"I think there was more we could have done to offer free or discounted haircuts to help people in need and garner some loyalty for the future," DeRosa said.
Claudia Napolitano, 47, who recently was laid off from her job as director of residences at Battery Wharf, took advantage of DeRosa's promotion.
"To help clients who are going through difficult times makes us much more likely to continue to go when things get better," Napolitano said.
Jenn Abelson can be reached at abelson@globe.com. 