Deep discounts show financial strain for retailers

The nation's stores are slashing prices on holiday goods up to 70 percent, and some are sending holiday goods straight to liquidators in moves that typically happen after Dec. 25.

WHY THE EXTREME MEASURES?: Stores are grappling with a consumer clampdown since the financial crisis escalated in September. That's resulted in a glut of goods stuck in the pipeline that need to be cleared out. Retailers may take a loss on the liquidations, but they are avoiding expenses for selling the merchandise in stores, from shipping costs to paying for the items to be unpacked.

IMPLICATIONS: The discounting is only expected to depress sales and profits for the holiday season, which typically accounts for as much as 40 percent of retailers' profits. Mark Vitner, senior economist at Wachovia Corp., expects retail sales to fall 0.5 percent for the November and December period, the first decline since layoff-laden 1982.

WHAT'S NEXT: Such extreme measures only reflect the financial strain that stores are experiencing and raise more concerns about the financial health of the industry. In recent months, there has been a string of liquidations, from Mervyns LLC to Linens 'N Things. Circuit City Stores Inc, the nation's second largest consumer electronics chain, filed Chapter 11 bankruptcy protection this month. More stores are expected to follow suit after the Christmas season.

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