Risking lower profits, discount stores attract shoppers with sales – but luxury chains opt for full-price

Retailers across the U.S. rolled out their most enticing deals to lure consumers to stores this weekend, and their strategies largely paid off. How they will fare throughout the remainder of the biggest shopping period of the year, however, is still in doubt.

Over the past decade, U.S. consumers have increasingly used the internet to supplement their in-store shopping experiences. Following Thanksgiving, Cyber Monday has become an important revenue driver during the holiday shopping season.

This year, sales on Black Friday rose precipitously from 2010. Retailers such as Target and Wal-Mart endeavored to lure additional shoppers into their stores by opening their doors on Thanksgiving, drawing the ire of employees. The strategy paid off, The New York Times reports.

Yet, even with the strong Black Friday earnings, many retail chains are working to buttress Cyber Monday sales. Last year, sales on the Monday after Thanksgiving surpassed $1 billion, and analysts assert this year the trend could continue, as more U.S. consumers opt for online deals.

In fact, online sales rose on Black Friday, with shoppers shelling out more than $816 million, jumping 26 percent from 2010. Many stores are offering aggressive deals through their online outposts, but those deals will not be available at their physical locations. This trend, according to analysts, underscores how businesses can improve performance and buttress earnings by reworking strategic sourcing and overhauling purchasing services.

What's more, the divide between high-end retailers and their low-cost counterparts has become even more pronounced, especially in terms of their approach to attracting business this holiday season. The period between Thanksgiving and Christmas is the most lucrative time of the year for nearly every retail chain, but companies that cater to high-end customers are benefiting from the relative strength within the luxury sector.

For example, Toys "R" Us, Wal-Mart, Macy's and Target opened many of their stores on Thanksgiving, as they worked to draw shoppers by offering steep discounts. The average customer of such stores is more budget-minded – particularly this year, analysts say – and they are loath to spend their money on fully-priced items. 

Shifting their strategy from prior years, executives at companies including Wal-Mart and Target are hoping to drive revenue higher through steep discounts. Economists affirm while this has helped to drive traffic at stores, it could also have a number of deleterious consequences. Stores are relying on robust sales because they are potentially losing money on sale items.

With their margins squeezed, low-cost stores are supporting profits through procurement cost reductions, improved retail sourcing and enhanced spend management. Analysts will not know whether the tactic pays off, however, until they report their quarterly earnings.

On the other hand, many high-end stores such as Nordstrom and Saks Fifth Avenue – which were battered during the recession – are not offering shoppers the great deals they can find at other retail outfits. Executives at high-end companies contend they are now attracting more shoppers willing to pay full price than in the boom years leading up to the economic contraction.

"We're now into a less promotional environment than we were before the recession," Saks chairman Stephen I. Sadove said.

Nonetheless, retail analysts are expecting overall holiday sales to rise slightly this year, with many forecasting a 3 percent uptick from 2010.