Retailers compete in the 'cheap thrill Christmas'

North American retailers are bracing for fierce competition this holiday season as they vie to win over “stingy consumers,” research analysts from BMO Capital Markets said during a conference call Wednesday.

For U.S. retail executives, the prevailing holiday sentiment seems to be “curb your enthusiasm,” analyst John Morris said.

In Canada, Dene Rogers, chief executive officer of Sears Canada Inc. (SCC-T24.451.164.98%) , said economic uncertainty continues to rein in consumer spending. “Sears will be aggressively marketing in the fourth quarter to convey to customers that we have the holiday season's most wanted products at prices that can't be beat,” Mr. Rogers said Wednesday in releasing his company's third-quarter results.

Loblaw Cos. Ltd. (L-T32.690.792.48%) expects this spirit of parsimony will extend to holiday food shopping budgets as well. “I think this Christmas will be pretty fierce in terms of competition,” Loblaw CEO Allan Leighton told analysts in a conference call Tuesday.

Here are some of the highlights from the BMO conference call, conducted from New York:

‘We're calling it the cheap thrill Christmas'

The hottest gift item this season in the specialty apparel sector? Sequined tops.

This is a popular choice, especially when paired with a lot of accessories, Mr. Morris said.

“We're calling it the cheap thrill Christmas, because when you kind of dress up with a lot of accessories on top of an outfit, it makes it look new,” he said.

Consumers might want to shop early for popular items, such as buffalo-check shirts, he added. Retailers are stocking less inventory this year for fear of being stuck with unsold product.

“Retailers are feeling a little frayed around the edges and consumers continue to be quite stingy.”

Toy story: Parents are making lists, and sticking to them

“At this time of year, you start to see the first Christmas moms pushing their carts through the toy aisles – it's a seasonal event, like seeing the first robin in spring,” said BMO analyst Gerrick Johnson, who covers the toy sector.

“However, the carts and baskets are not overflowing …it seems to me that shoppers are sticking quite tightly to their Christmas lists, and also to promotions.”

Mr. Johnson said the “holy grail” for manufacturers and retailers this year is to keep the prices of popular items under $30 (U.S.). If they can hold the prices below $20, “even better,” he said.

“This has been done by engineering some of the bells and whistles out of the toys, putting a little less in the box. If the toy beeped last year, it's not going to beep this year.”

But there will be no Zhu Zhu hamsters under the tree...

For cautious retailers, the biggest risk is around new or untested products, Mr. Johnson said.

“A good example is Zhu Zhu pets that everyone has heard about…those incredibly popular hamsters that you can't find anywhere,” he said.

“They are a brand new item, they tested well in early focus groups, but they have no track record, and not many retailers were willing to place million-piece orders,” Mr. Johnson said.

The electronic Zhu Zhu toys can be programmed to react to specific situations, and were to have sold for under $10.

“But you can't find Zhu Zhu pets, because no one has ordered them…You can maybe find some on eBay, for double or triple the price.”

In the beauty sector, Avon expected to take the crown

Avon has better incentives than other beauty products companies for its sales representatives, so when they are out knocking on doors, they are going to sell more products, analyst Connie Maneaty said.

Avon has a range of lower-priced products which appeal to budget-conscious consumers. But the company has also had success with its more-expensive skin-care products aimed at the over-40 crowd.

Another popular item is the heavily-advertised fragrance, In Bloom by Reese Witherspoon, Ms. Maneaty said.

With beauty products, in particular, advertising is key, she added.

“If consumers need to be prodded, you need to tell them a story, otherwise they forget to buy your product.”

Looking forward to those January sales? Pickings might be slim

Consumers typically hit the malls in January looking for bargains, but bargain-hunters might be disappointed with the January sales this season.

“We think January… is going to be a little bit less of a national past-time for the consumer; there's going to be less sport involved,” Mr. Morris said.

“That's because these leaner inventory levels really mean there's going to be a lot less left over at the end of the season,” Mr. Morris said.

It appears, instead, that retailers “are going to be delivering spring earlier.”