But analysts say shoppers shouldn't expect to see a repeat of last year's whopping discounts.
November 27, 2003: 9:16 AM EST
By Parija Bhatnagar, CNN/Money Staff Writer
NEW YORK (CNN/Money) - Retailers across the nation are gearing up for the first rush of frenzied shoppers right after Thanksgiving, as "Black Friday" rolls around to mark the start of what could be the best holiday shopping season in four years.
The last day of Thanksgiving week gets its name from the hope that on that day merchants' financial statements will move out of the red and into the black.
But Black Friday is also a closely-watched indicator of what's to come in the weeks ahead.
The National Retail Federation (NRF), the industry's largest trade group, expects sales for the key November and December shopping period to grow 5.7 percent, the largest rise since 1999, to 217.4 billion dollars.
Sales for the same period last year grew just 2.2 percent, the weakest performance in more than a decade as war threats and economic worries spooked consumers.
But despite the NRF's bullish outlook, some industry watchers are viewing the holiday season with caution.
The consensus among analysts is that holiday spending this year will be solid, if not spectacular, averaging a smaller 4 percent growth.
"The consumer is jittery," said Richard Hastings, chief retail analyst with Bernard Sands. "Rising debt levels, inflation and higher gasoline prices are all real threats and a drag on spending."
Better profits but leaner discounts?
Everybody loves a good deal around the holidays. But if you're expecting to find deep discounts at your favorite stores, you may be disappointed.
Most retailers have kept their inventories tight throughout the year. While that might improve profit margins for retailers in the crucial fourth quarter, there's also a downside for consumers.
"You will still see 50 percent off on merchandise but maybe not 70-to-80 percent off," said Howard Davidowitz, chairman of Davidowitz & Associates.
Hastings agreed. "Retailers know that many people will wait until after Christmas for the big purchases. So they don't want to go too far into the holidays with excess inventory that they eventually will heavily discount," said Hastings.
Still defensive
Despite signs of a pickup in the economy and an improving labor market, consumers don't appear to be feeling the Yuletide cheer.
"The economy still has to prove itself and create millions of new jobs," said Hastings. "The consumer is excessively dependent on all forms of credit for spending."
The Conference Board in a survey Monday said U.S. households on average are expected to spend $455 on gifts this year, down 5 percent from 2002.
"The five percent drop is shocking," said Delos Smith, economist with the Conference Board, a New York-based business research group. "It indicates that perhaps the consumer tax rebate stimulus that benefited retailers during the back-to-school season has petered out."
Additionally, a survey from the Consumer Federation of America and the Credit Union National Association said 34 percent of consumers polled said they would spend less during the holidays this year compared to last year.
Wal-Mart (WMT: Research, Estimates), the world's largest retailer, earlier this month sent jitters through the industry when it acknowledged that it has yet to see strength in consumer spending.
"Wal-Mart's news is a very big deal," Kurt Barnard, an independent retail consultant. "There's no doubt that a significant number of consumers are shopping paycheck to paycheck. Most are also waiting for price reductions. So saying that the consumer is still cautious is a good indicator that the holiday season will only be moderately better than last year."
Nevertheless, analysts say it's the discounters such as Wal-Mart and Target (TGT: Research, Estimates) that are expected to ring in the bulk of holiday sales, while department stores will offer the most aggressive promotions.
And the most popular gift so far? Digital electronics.
"The DVD burner, plasma screen TVs, digital cameras are the hot picks," said Bank One economist Diane Swonk.
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