NEW YORK -- Retailers are so desperate this holiday season that they're willing to lose money to get you to spend yours.
Take online jeweler Stauer. It's offering a $249 amethyst necklace for free -- provided customers pay $24.95 to ship it. Stauer will lose money on the deal, but it hopes to reel in new customers who will buy other jewelry.
"In this economy, you have to be outrageous in your offers," said Michael Bisceglia, the president of Stauer, which found that more than a third of customers who took advantage of a similar deal on a $179 pearl necklace in 2009 bought additional items. "You have to shake up the world a bit."
Not every retailer will go as far as giving away merchandise during the holidays, but many will offer profit-busting incentives to lure cost-conscious consumers. It's a crucial time of year for merchants, which can make up to 40 percent of their annual revenue in November and December. And they're so worried that Americans are spooked by the weak economy that they're willing to sacrifice profit for sales.
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Nordstrom, for instance, is one of the first retailers to offer free shipping on most orders, no matter how small, even though it could wind up paying $3 to ship a $7 pair of socks. Sears is not only offering to match the cheapest prices customers find online; the department store chain is also giving them an additional 10 percent off the difference.
Retailers are rolling out incentives that essentially make their merchandise more affordable because they know the only way to get holiday sales is to offer the one thing that will attract shoppers these days: low prices. That's a change from better economic times when stores could lure customers with promises of higher-quality products or better customer service.
The shift is happening as Americans continue to reduce their spending as they grow increasingly concerned about the stubbornly high unemployment rate, stock market turmoil and an overall fragile U.S. economy. In fact, a recent Gallup poll found that 8 of 10 Americans think the country is in a second recession.
Despite the challenging environment, revenue in November and December is expected to be up about 3 percent from those months last year. Such an increase -- below last year's 5.2 percent spike over 2009 -- would be above the 2.6 percent average gain over the last 10 years.
But Americans are expected to do more online comparison shopping and spend less time in stores. ShopperTrak, a Chicago research firm that tracks how many customers shop at more than 25,000 stores, expects foot traffic to drop 2.2 percent during the holiday season compared with a year ago. So far this year, consumers have gone to an average of three stores during a mall trip, down from an average of five stores in 2006.
To get people to spend more money once they're in stores, retailers are offering incentives that could shrink their profits.
For instance, merchants have long matched prices at competing bricks-and-mortar stores, but not online retailers. After all, it's hard for them to compete with online-only operations that can offer lower prices because they don't have the high overhead costs of running physical locations. But now a growing number of bricks-and-mortar stores like Bed Bath and Beyond are matching prices with online-only merchants like Amazon.com.
Sears Holdings is going one step further by giving customers an additional 10 percent off the difference between its price and a competitor's online price. So, if a shopper finds a TV that's $30 cheaper at Best Buy, the consumer would get the lower price and an additional $3 off. The catch? The retailer will only match online prices of retailers that have physical locations, not online-only merchants. Some retailers are sweetening incentives to the point that it could erode profits.
Luxury retailer Nordstrom used to require that customers spend at least $200 to qualify for free shipping, because bulk orders make up for the merchant's cost to ship items. Now, Nordstrom will ship most items for free, which means it could wind up losing money.
Nordstrom is following a similar move by L.L. Bean, which got rid of its minimum-order requirement for free shipping. "This is increasingly becoming an expectation of customers," said Colin Johnson, a Nordstrom spokesman.