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Tue, Dec 24, 2002 - Page 12 News List

Retailers worldwide mark down prices

SHOP 'TILL YOU DROP With outlets from New York to Madrid struggling to boost sales in a stagnant global economy, discounts are already being offered

BLOOMBERG , SEATTLE

Crowds of last-minute holiday shoppers wait in check-out lines at a Target store located in the Coral Ridge Mall in Coralville, Iowa, Saturday.

PHOTO: AP

Shirley Snyder, a retired real-estate trust officer, says she rarely buys gifts at full price.

"I tend to wait until things go on sale," said Snyder, 56, as she hunted discount video discs at Seattle's Pacific Place Mall. "Most of the time, they do."

Sales are something new for Herve Prudhomme. The 29-year-old Parisian said he was surprised to be handed a list of discounted items as he walked into the Habitat furniture store to finish his Christmas shopping Saturday. "The sales catch your eye."

With retailers from New York to Madrid struggling to boost sales in a stagnant global economy, discounts are a bigger hook worldwide to lure customers. The US remains the bargain epicenter as stores slash prices, advertise promotions, open early and close late. JC Penney Co and Federated Department Stores Inc, owner of Macy's and Bloomingdale's, offer more than 60 percent off clothing and jewelry.

UK and Hong Kong retailers use similar tactics. Germany and France, where legal restrictions are falling or under review, are warming up. Marionnaud Parfumeries, Europe's biggest retailer of perfumes, cut 15 percent off the prices of more than 95 percent of products at its stores in France.

The discounts may determine whether consumers, who account for more than two-thirds of US economic growth and more than half in Japan and Germany, keep spending. The US is set to expand 2.6 percent next year, according to the Organization for Economic Cooperation and Development, while Europe will grow 1.8 percent and Japan 0.8 percent.

Zero-percent financing on autos and two-for-one specials on toys, clothing and electronics make a difference, investors said.

"Clearly, people are more price-sensitive than they were in years when there was an economic boom," said Kim Galle of Pioneer Investments, whose US division manages about US$17 billion in assets, including shares of Wal-Mart Stores Inc, the world's largest retailer. "Good merchants have done a great job getting people to buy things."

Discounting can have drawbacks, economists say. Price cuts limit companies' ability to increase profits. This crimps investment, stunting one source of economic growth, and adds to concerns about a possible bout of deflation. Falling prices make it harder to pay for labor and raw materials.

"I think it's a very serious risk," Stephen S. Roach, chief economist at Morgan Stanley, said of the deflation threat. Roach said on Dec. 12 that next year's growth will be "sluggish."

The US, with few government restrictions, a tradition of discounting and software that determines when to discount, is the pacesetter. Kohl's Corp had a one-day sale that lowered the price of every item in its store. Wal-Mart's strategy of keeping prices low from the start compels competitors ranging from electronics chain Best Buy Co to Toys 'R' Us Inc to cut prices to retain customers.

Europe, which imposes more government restrictions aimed at protecting against predatory competition, is likely to lag the US for some time.

French law bars retailers from selling below cost and from advertising price cuts outside of government-set sales periods that begin at the end of January and June each year. Germany's laws have the effect of limiting price cuts to summer and winter sale periods, and for companies in insolvency proceedings.

In France, a government commission is considering revising the anti-discounting laws. Alban Eyssette, an analyst at Dexia Securities, sees little prospect for change.

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