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Electronics used as bait

Jose Medina borrowed a friend's Nissan minivan to pick up two Hewlett-Packard Co personal computers for US$698 each at a Wal-Mart store, along with a DVD player, toys and clothes.

"We spent a few thousand here," the 45 year-old maintenance worker said yesterday while loading the items with his girlfriend in New Brunswick, New Jersey. "Wal-Mart is the place to shop this year" for the holidays, he said.

Wal-Mart Stores Inc, the world's largest retailer, and other discounters such as Costco Wholesale Corp and Target Corp are offering a wider selection of computers and flat-screen televisions to attract shoppers like Medina as most retailers brace for meager sales gains over last year's holiday season.

"Electronics has got to be a key item because it's a big-ticket item," said Britt Beemer, head of market research firm America's Research Group. Shoppers are visiting fewer stores because of a shorter holiday season and tightened budgets amid a weak economy, he said. "If you're winning at this point, you're winning big. If you're not winning, you're in big trouble."

Specialty retailers such as Best Buy Co and Circuit City Stores Inc, the two largest US consumer-electronics chains, have the most at stake, analysts said. The chains' risk losing customers to the lower-price rivals, where shoppers have traditionally bought less costly items such as CDs and TVs.

"Most of retailers looked at this year as a tough year," said Tom Edwards, senior analyst at NPD Group. "They don't want to teach their customers to go to another retailer."

Best Buy's shares have dropped 48 percent this year, while Circuit City has declined 52 percent. Shares of Bentonville, Arkansas-based Wal-Mart fell 12 percent.

Sales at Wal-Mart, Target and Federated Department Stores Inc were less than expected in the first full week after Thanksgiving. Merchants hope advertising popular items such as digital cameras at low prices this past weekend pulled more customers into stores, analysts said.

Snowstorms in the Northeast reduced sales gains last week at stores open at least a year to 2 percent from the prior year's period, according to a Bank of Tokyo-Mitsubishi and UBS Warburg survey. Bank of Tokyo economist Mike Niemira said November- December sales may slow to an increase of 1.5 percent, the worst gain since at least 1970, if consumers don't accelerate spending.

"It's still an open issue," said Niemira, who has forecast a 2.5 percent increase in holiday sales. "To the extent that some sales were most likely deferred last week, that would suggest you should get some rebound."

Department stores are also relying more on electronics, along with deep price cuts and additional promotions, to boost sales.

Sears, Roebuck and Co, the largest US department store chain, held a three-hour sale Saturday that featured an extra 10 percent off most merchandise. Sears also offering no-interest financing on purchases of televisions costing more than US$499.

"The prices have been better" this year, said Eileen Hicks, 48, who was shopping Saturday at the Serramonte Center in Daly City, California. "I'm shopping Macy's, but only on sales."

"They're trying to advertise and make sure customers at least walk into their door, and then they'll worry about margins later," said Vick Khoboyan, an analyst at Financial Management Advisors, which manages US$1.6 billion, including Costco and Best Buy shares.
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