Instead of "Ho, ho, ho," this year's holiday cry is "Cheap, cheap, cheap!"
Retailers have been fighting inflation to keep customers shopping. Last week, the Labor Department's Consumer Price Index showed that except for energy and food, retail prices were dormant in November. And the Federal Reserve board ended its meeting by saying it "expects that inflation will remain subdued for some time."
Part of the reason for low pricing is the pressure from retail behemoth Walmart Stores Inc. The nation's biggest retailer announced on Sept. 30 that it would begin selling a number of name-brand toys, such as Barbies and Transformers, for just $10 each. But in recent days, it cut prices even further, down to just $8.
Walmart's intense price squeezing has helped keep the pressure on all merchants. For example, this weekend, Gap Inc. is offering 25-percent off regularly-priced merchandise — except for denim.
Nevertheless, retailers hope to protect profits by keeping inventories lean. They also are pressuring manufacturers to drop their wholesale prices. As a result, many Chinese and Asian manufacturers have cut product prices by 10 to 30 percent.
Even powerful U.S. suppliers have been subjected to intense pricing pressure. In mid-November, Costco Wholesale Corp. stopped ordering new Coca-Cola products to force down the wholesale prices. The chain even put up signs in stores saying that until Coke could be sold for a "competitive" price, "we're not prepared to sell it." Last week, the two companies worked out a deal to put Coca-Cola products back into Costco stores in time for Christmas and New Year's Eve parties. But the drama underscored just how tough negotiations between wholesalers and retailers have been this year.
Retailers will continue to push down prices well into the new year because they know consumers are not feeling flush, according to Bernard Baumohl, chief global economist for The Economic Outlook Group, a forecasting firm.
He notes real, disposable personal income has dropped 1.5 percent in the past year. "It is not possible for consumer prices to become problematic so long as wages and salaries are falling," Baumohl said in a written analysis.
Consumer Reports released a poll last week showing that as of Dec. 6, four in ten adults had done no shopping for the holidays. That poll also showed that on average, families planned to spend about $700 on gifts, about $40 less than last year.