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Theresa Williams
Kelley School of Business

George Vlahakis
University Communications

Anne Auer
Kelley School of Business

Last modified: Wednesday, December 3, 2008

Kelley School expert: 2008 holiday season for retailers could be among the worst ever

Dec. 3, 2008

BLOOMINGTON, Ind. -- Christmas decorations and music have been in some stores since Halloween and many retailers have used early promotions and high markdowns to register sales. But it may not be enough to prevent one of the worst holiday shopping seasons ever, according to Theresa Williams, a retail expert in Indiana University's Kelley School of Business.

Theresa Williams

Theresa Williams

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"It is bad and it is unprecedented," said Williams, director of the school's Center of Education and Research in Retailing. "This time of year, companies usually spend money to promote products, distributing look books and sending out items for review. Few retailers are doing it now.

"Conducting business as usual during this holiday season may appear that they are out of touch with what the consumer is currently experiencing," she added.

Most economists, including those in the Kelley School, are forecasting a bleak outlook for 2009, including a sharp decline in employment. Consumer concern about current and future economic conditions could result in a dismal 2008 holiday season for retailers.

Williams said stores that traditionally take 25 to 40 percent off items on sale this year will be more likely to take 50 to 75 percent off.

"Few retailers can maintain profitable margins at discounts of this size -- 50 to 75 percent -- thus they will be fortunate to break even," she said. "The good news is that most retailers are more efficient at managing inventories than during the last recession of 2000-2001, but for many it could be worse."

In response to this crisis, retailers are pulling what Williams calls the "sale lever" earlier than ever. For example, the 200-toys-under-$10-sale at Wal-Mart will add additional competitive pressure on toy retailers such as KB Toys, resulting in little if any remaining profit margin. What's more, Williams predicts there will be no customer loyalty this season. Consumers will shop wherever they can get the best deal.

One exception to bad sales in previous years has been consumer electronics, but not this year.

"One of the first reports that was shared a few weeks ago was that Best Buy was cutting their earnings forecast for fourth quarter to much lower than expected, and Circut City was filing Chapter 11," she said. "So, in short, this category is not safe this year.

"Credit is a problem for the large ticket items," she added. "In fact, the only retailers that I have seen positive numbers for include BJ Wholesale, Wal-Mart and Fossil -- Fossil is due to international business -- and a selection of grocers."

Before becoming an academic, Williams worked in retailing as a buyer for three southern-based department stores. She currently teaches classes in retail and marketing strategy. Her research has appeared in The Journal of Retailing and Consumer Services, The International Journal of Retail and Distribution Management and other publications.