The New Economy

Black Friday deals: Are consumers facing them in a 'frugal' mood?

Although retailers are hawking Black Friday deals, will consumers be in a mood to take them up on their offers?

Glen Stubbe/Minneapolis Star Tribune/MCT

Around 2:30 a.m., Tyler Effertz, left, purchases an Xbox 360 Elite, a few games and accessories in the Game Stop store in Eden Prairie Centers, Minn., on Black Friday 2007. With retail sales expected to slink even farther below 2007 levels, will consumers ignore Black Friday deals due to a lack of confidence?

By David Grant Contributor

November 24, 2009

Updated at 1:30 p.m. EST with details from new National Retail Federation survey.

For retailers, the scheme is simple: Pitch the hottest Black Friday deals and watch consumers flock to their stores.

That is, of course, if consumers are feeling confident enough to spend early and often this holiday season. Recent surveys suggest this might not be the case.

Consumer confidence registered an ever-so-slight increase in November, ticking up to 49.5, eight-tenths of a point higher than October.

"The moderate improvement in the short-term outlook was the result of a decrease in the percent of consumers expecting business and labor market conditions to worsen, as opposed to an increase in the percent of consumers expecting conditions to improve," says Lynn Franco, director of The Conference Board Consumer Research Center, in a press release Tuesday. "Income expectations remain very pessimistic and consumers are entering the holiday season in a very frugal mood."

The Consumer Confidence Survey polled 5,000 Americans monthly and is published by the Conference Board.

These findings track with other surveys on holiday shopping. One such piece of research by consultant group Convergys, a customer interaction and human-resources consulting firm, shows that consumers were planning on reducing their spending (approximately 50 percent of respondents) or keeping spending constant relative to their income (40 percent). That's bad news for retailers, considering 2008 saw a 3.4 percent drop in holiday spending from 2007.

The National Retail Federation (NRF) forecasts a 1 percent decline in holiday sales. Coming off of a "pitiful" holiday sales showing in 2008, says Hans Sternberg, a retail consultant, "those are bad numbers."

"Last year the retailers got caught with their pants down," says Mr. Sternberg, author of the book "We Were Merchants." "Business just died. Everybody is projecting the range of sales but we ought to realize that that isn’t going to bring us up to the sales level of 2007."

But better inventory management may hold the key to stronger profit margins from Black Friday through Christmas.

"The retailers have done a better job controlling their inventory, almost to a fault," Sternberg says.

The negative upshot of all that control? Less hiring and perhaps shallower sales.

Retailers have, "cut back on their goods that they are going into the season with and that has serious implications in terms of the amount of people they are going to hire for Christmas," Sternberg says. "You’re going to have less mark downs and less need for dramatic markdowns. The sales aren't going to be up to last year."

To the contrary, however, the NRF released a survey Tuesday stating that 134 million Americans planned to shop on Black Friday, up from 128 million in 2008.

“While consumers are still expected to remain cautious with their holiday spending, the anticipation of Black Friday deals seems to be coaxing shoppers out of hibernation, many arriving to stores early and with coupons in hand,” says Pamela Goodfellow a senior analyst at BIGresearch in an NRF press release.

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— David Grant is a Monitor contributor. What are your Black Friday plans? Shopping from home or trekking to the store? Let us know on Twitter.