A Fast Start For Holiday Retail

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Elmo TMX? Gone. PlayStation 3 and Nintendo Wii? Sold out.



Overall, sales on the kickoff weekend to the holiday shopping season were strong, but shortages of this year's hottest items left many shoppers disappointed and ended up hurting those retailers without something special to lure customers.



Steep discounts and extra-early openings on Black Friday led to robust sales at many retailers, with sales up 6% to $8.96 billion, according to preliminary estimates by ShopperTrak, which tracks retail sales at 45,000 stores in malls. "This data shows an even larger increase than expected as consumers proved they were willing to spend," said Bill Martin, co-founder of ShopperTrak.



"People Don't Have Access"

But several retailers were left out of the celebration. Wal-Mart (WMT), the world's largest retailer, expects same-store sales for November will decline 0.1%, its first monthly sales decline in 10 years. Shoppers were disappointed that some stores were sold out of the gifts they most wanted, such as the new Elmo TMX and the PlayStation 3. "People don't have access to two of the top gifts of the season -- it's like the story of the Grinch," says Patricia Pao, founder of retail consultant The Pao Principle in New York. "Scarcity of products make them valuable, so manufacturers made very few of these items to create demand."



Empty store shelves are everywhere. The Elmo TMX, or "Tickle-Me Extreme" Elmo, a 10th anniversary edition from Mattel's (MAT) Fisher Price division, is sold out at practically every retailer, from Toys "R" Us to Wal-Mart. Pao believes that Fisher Price purposely released only a third of the anticipated demand to create buzz around the launch. Fisher Price says the shortage was not self-induced. Rather, Fisher Price President Neil Friedman says, "We had high hopes and Elmo has exceeded our expectations by a lot." In any case, Fisher Price has built up plenty of buzz. The $39 list-price Elmo, which laughs hysterically, rolls over and stands up, is now being bid on eBay (EBAY) for more than $100.



As for the PS3 from Sony (SNE), Toys "R" Us conducted a presale on Oct. 29 and was sold out of the game even before it hit the shelves. Production delays might have caused Sony to miss its goal of having 400,000 PlayStation 3s in U.S. stores, according to several Wall Street analysts including Justin Post of Merrill Lynch (ML). American Technology Research's Paul-Jon McNealy said in a report that Sony's initial shipment of PlayStation 3s might have been only about 125,000.



Airlifting More PS3s

Sony declined to provide specifics on the number of game consoles that have shipped to the U.S. It did, however, release a statement on the issue: "Sony Computer Entertainment America has been airlifting additional shipments of PlayStation 3 systems into the North American market since the launch on Nov. 17. We were able to get a fresh supply of PS3s in the hands of retailers prior to Black Friday, along with games and peripherals. Feedback from our retail partners is that demand is still incredibly high and that PS3s put on store shelves are quickly getting snapped up by holiday shoppers. We will continue to utilize airfreight delivery for the PlayStation 3 to assure a steady stream of systems for North American consumers through the end of the year. Our goal remains to have 1 million units in the pipeline by Dec. 31, 2006."On eBay, people were offering over $1,000 for the $600 PS3s [see BusinessWeek.com, 11/12/06, "PS3: The Sound and Fury").



Clearly, short supply of products and tight-fisted retailers left many customers feeling short-changed. Sharadha Sambasivan of Long Island [N.Y.], a loyal Macy's customer for many years, was disappointed that a $10 coupon this year applied only to purchases of $25 or more, compared to last year's $20 purchase. "Many shoppers were also mad that store clerks didn't honor the $10 coupon on early-bird sales," says Sambasivan, who was planning to visit Kohl's (KSS) and J.C. Penney (JCP) to make up for her disappointing Black Friday experience at Macy's, which is run by Federated Department Stores (FD).



Malls and many stores this year built more buzz than usual to lure shoppers with earlier than usual openings. CompUSA started its annual Black Friday sales at 9 p.m. on Thursday, beating out the "midnight madness" specials at many malls and others like Wal-Mart and Best Buy (BBY), which opened their doors at 5 a.m., compared to the usual 6 a.m. openings for early-bird Black Friday shoppers.



Set for Cyber Monday?

Shoppers were clearly left wanting more from Wal-Mart's deep discounts, however. The world's largest retailer slashed prices this year on toys, home appliances and electronics, including an enticing $988 Viore 42-inch plasma TV [see BusinessWeek.com, 11/14/06, "Holiday Hysteria"]. But the discounting wasn't enough to avoid the surprising sales drop, which was below the company's own tepid expectations. Some retail consultants say it's hard to get customers in the door if hot toys like Elmo TMX and PlayStation 3 are already sold out. It certainly didn't help that Wal-Mart's Web site didn't function properly for almost 10 hours -- as many shoppers found blank pages when they logged on. Wal-Mart will give more details about its November sales on Nov. 30, the same day as several other retailers.



Online shopping is clearly becoming an ever more significant part of the holiday retail season. This year the National Retail Federation says 47.1% people will shop online, up from 36% three years ago, as more shoppers enjoy the convenience, speed, and simplicity of the Internet. Still, there were snafus online too, and not just at Wal-Mart. Amazon.com (AMZN) suffered disruptions on its Web site on Thanksgiving Day because of a sale on the Microsoft (MSFT) Xbox 360 video game console. Many retailers are expecting shoppers to return on the Monday after Thanksgiving, which is dubbed Cyber Monday and is one of the largest shopping days of the year. Many employees return to work after a four-day break and use their office computer to shop.



Some stores made holiday shoppers feel extra special, rather than just offering deep discounts on a few hard-to-find items. J.C. Penney, for instance, launched its "redbox gifts" on Nov. 13, which features a wide selection of gifts from assortments under $20 to under $100. The department store also makes customers shopping for gifts feel special by peppering its floors with special "redbox gifts" sales associates to provide an extra level of service to customers. In a release on Nov. 25, the store said: "The holiday season is off to a good start at J.C. Penney. We have seen brisk traffic in our stores, and our 'redbox gifts' selection is being well received by customers JCPenney experienced consistent strength across all regions of the country" [see BusinessWeek.com, 11/21/06, "Customer Service Is Back in Style"].



Shoppers have spoken. Retailers take note: This year, customer service is trumping deep discounts.