Holiday Retail Discounts Deep During Final Weeks

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Major retailers have not let up on offering discounts — even a little. The trend could pull in shoppers who did not exhaust their budgets on the Thanksgiving to Black Friday to Cyber Monday sprint. However, the trend may also cause profits at many retailers to push closer and closer to zero.

J.C. Penney Co. Inc. (NYSE: JCP) is the huge retailer that can least afford an unprofitable holiday. The company announced that same-store sales rose 10% last month. However, that needs to be measured against the same month a year ago when sales fell more than 20%. The market briefly pressed J.C. Penney’s stock up on the news. It did not last more than a day. Investors still believe Penney could run out of money. Its core discount program involves the J.C. Penney credit card. People who use it to shop at the company’s store will get an “extra 20% off” items that are already for the most part discounted. Even people who do not have the card will get 15% off existing discounts anyway.

Target Corp. (NYSE: TGT) earnings and forecasts were below what Wall Street expected. Therefore, it has to do more than some other retailers to impress Wall Street by showing it remains competitive against it rivals. Target has decided to target Toys”R”Us. Among its largest offers is “buy one, get 50% discount on the second” sale promotion. Target has also decided to try to pull in buyers of clothing with discounts as deep as 30%.

Wal-Mart Stores Inc.’s (NYSE: WMT) approach to discounts may be the most clever. It wants shoppers to believe that Cyber Monday did not end on Monday. Walmart.com’s major promotion is called “Cyber Week.” In the past, only 5% of Walmart’s sales have been online. Because of the theoretical margin improvement of items that do not have to be sold out of brick-and-mortar stores, the world’s largest retailer may have decided one way to drive profits is to drive people online.

Each of these discount levels is deep enough to cause investors to question the tactic. As business school professors preach, companies cannot lose money on a product and make it up on volume.

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