Holiday Shopping Season: A Cash-Strapped Consumer Awaits Santa

Retailers would be facing the official beginning of holiday shopping season on Black Friday, which falls on Nov.25, a day after Thanksgiving.

This time, retailers would face cash-strapped consumers who spend their dollars with more caution.

Consumers are not going into the holiday season in a particularly cheery mood either. Consumers' views on overall economic conditions and their own job and income prospects remain near recession lows, and the unemployment rate is still above 9 percent, Wells Fargo economist Mark Vitner wrote in a note to clients.

Retailers too are well aware of consumers' unease and know what they must do to survive in this slow-growth economy. Gone are the days of massive markdowns and door-buster giveaways. Those sorts of loss-leaders were the price that retailers had to pay in 2008 and, to a lesser extent, in 2009 when merchants were caught with too much inventory and faced slow customer traffic.

Bargain hunters may have a tougher time finding those markdowns this year, as retailers are keeping a sharper eye on profit margins. Retailers will offer fewer jaw-dropping sales and instead will focus on short-term, targeted promotions aimed at their best shoppers.

Despite the dismal attitudes reflected in consumer confidence, retailers have posted 16 consecutive months of increased sales. That is not to say that weak sentiment should not be a concern, but it probably does not signal that the U.S. consumer is completely going into hiding either.

Given the recent performance of all three of those indicators, it is difficult to blame people for feeling somewhat down. When you consider the added complications of the uncertainty over how things will play out in Europe and the lack of a cooperative spirit in Congress, it is little wonder that consumer confidence is roughly where it was at its trough in the past recession, Vitner said.

Meanwhile, several retailers have begun early promotions for the holiday shopping season to get increased turnover. Given a weak economy, many retailers are trying to jump-start holiday shopping early with earlier-than ever-promotions and earlier-than-ever store openings for the big Black Friday weekend.

Retailers are facing higher costs this season and have raised prices to help cover them, but are nervous about consumer response. But lower inventory units should work in retailers' favor as consumer hunt for hot items, Caris analyst Dorothy Lakner wrote in a note to clients.

Following are Lakner's views on various retailers:

Abercrombie & Fitch Co. (NYSE:ANF): Lakner's favorite in this space remains Abercrombie & Fitch, especially with the shares down about 40 percent since Nov.3.

Our stance is that pricing is a lot easier/faster to fix than product (NOT an issue for ANF), and we do not see the entire international strategy as flawed. Weekend promotions unchanged from last week, the analyst said.

American Eagle Outfitters (NYSE:AEO): The retailer has great color for holiday, its pickup in third-quarter sales came with a modest step-up in promotions-it had an extra 30 percent off F&F event last weekend, a $29.99 sweater and jeans promo this weekend, both generating lines at the register.

Zumiez Inc. (NASDAQ:ZUMZ). Zumiez continues to focus on hot brands to draw customers more than low-priced deals and its ability to post nicely positive comps against 20%+ comps last year signals how strong comps can be once the tough compares are done. Promos like buy shoe at full price, get sale price shoe 50% off help drive both full price and clear older product.

Nordstrom, Inc. (NYSE:JWN): The analyst continue to see Nordstrom as a big holiday beneficiary given affluent customers and stronger categories like footwear, accessories and beauty, good for holiday gifts. Nordstrom opens at 7 am on Black Friday-only then will it unveil its holiday decorations.

Gap, Inc. (NYSE:GPS): Gap continues to do well with bottoms, still not enough biz in tops -- also not enough holiday color to relieve the drabness of fall. Banana's assortments are in better balance in women's (lots of sparkle for holiday) and men's should continue to do well.

Old Navy faces the most constrained consumer, but is full of color and great prices for the whole family-the key will be new marketing getting customers in the door, the analyst said.