Retailers face headwinds this holiday season

“Years of private-equity buyouts have left many speculative grade retailers with large amounts of debt and relatively limited free cash flow,” Baldwin wrote in a recent Moody’s report. “In many instances, capacity to absorb less-than-planned operating results is modest.”

The outlook for retailers is not universally bleak; a lot depends on what they’re selling, say analysts. Toy stores will likely feel some of the fallout from a wave of product safety recalls. But demand remains strong for the latest generation of big-screen TVs, personal computers and video games, which should help big electronics retailers like Best Buy, according to Mitch Kaiser, a retail industry analyst at Piper Jaffray.

Video   Are they desperate? Nov. 12: Retailers are offering deals and other incentives to lure shoppers into their stores. Are they desperate? A panel of experts tackles the issue. CNBC

“What we've found in the past, historically, is that product cycles have trumped economic cycles,” he said. “And we would we expect Best Buy to be one of the few retailers to have a pretty good holiday season.”

In years past, retailers have responded to sluggish sales by slashing prices and pushing discounts sooner than usual. That means consumers who do open their wallets can expect to find bargains this year. Some of those discounts have already started.

Wal-Mart has begun advertising discounts on some items to get holiday shoppers started earlier than usual, telling customers they don’t need to wait for the traditional race to the shelves when the doors open on the morning after Thanksgiving. Those discounts may help boost foot traffic, but they won’t help boost the bottom line. And while they may shift sales earlier in the season, starting promotions before Thanksgiving may simply undercut sales closer to year-end.

With more shoppers going online or opting for gift cards, retailers may have a tougher time gauging how far — and how fast — to cut prices. In the past, many had used Black Friday — the traditional shopping kickoff on the day after Thanksgiving — to gauge demand for the rest of the year. As more sales have shifted to the Internet, those transactions have become an important barometer for the overall shopping mood. Despite the weak store traffic in October, online retail business for the month was up 19 percent from a year ago to nearly $10 billion, according to comScore, which tracks Web traffic.

As gift card sales have increases, the season has spread well into January; retailers typically book sales when gift cards are redeemed, not when they’re sold. Consumers who hold onto cards may wind up missing promotional sales and discounts — making their purchases more profitable when they eventually get around to redeeming their cards.

Most retail stocks have taking a pounding this year, though they perked up a bit on news that Wal-mart had a better-than-expected third quarter. Still, the industry faces the prospect of weaker spending through the remainder of the year, which has some investors looking for other places to put their money.

"We don't like any of retailers and for a straightforward reason," said Barry Ritholz, a money manager who writes a blog on the stock market. "It was a weak back-to-school season; we had a poor September and October. I don't think retailers are desperate, but they're definitely nervous."

MORE FROM HOLIDAY RETAIL

Holiday retail Section Front

‘Cyber Monday’ sales up 20 percent over '08   ‘12 Days of Christmas’ cost: $87,403 Retailers seem more prepared for tepid sales Survey: Black Friday spending up 0.5 percent Black Friday holiday shopping kicks off Newsweek: Why Black Friday doesn't really matter For Black Friday, it's HDTVs and diapers Black Friday deals for popular retail stores Is Black Friday really worth the effort? NYT: Price war brews between Amazon, Wal-Mart Holiday retail Section Front   Add Holiday retail headlines to your news reader: