Is It Too Early to Start Holiday Shopping?

Christmas is months away, but for many retailers the holiday shopping season has already begun.

Over the summer, stores like Sears (SHLD) and Kmart rolled out Christmas-in-July deals, many of which were intended to bring customers back for the holidays. Two months later, retailers began decking out their display windows with tree ornaments and holiday decorations.

But with consumer confidence subdued, unemployment near 10% and foreclosures still a concern, few consumers are thinking about holiday shopping, says Kimberly Picciola, a senior equity analyst at Morningstar. In most cases, they may be better off. The majority of retailers are unlikely to roll out their best holiday shopping deals until after Black Friday, she says.

Why? Most retailers lowered their inventory levels for this year’s shopping season compared to last year. That leaves them with more leverage to keep prices higher until the end of the shopping season.

Here are five questions consumers should ask themselves before starting their holiday shopping early.

Can I expect the same discounts this year as last year?

No. Although most retailers will continue discounting, their discounts won’t be as big as they were during last year’s holiday shopping season. Back then, retailers discounted their items by as much as 80% off their original price, says Marie Driscoll, a director in Standard & Poor’s equity research department. This year, most holiday sales won’t knock more than 40% to 60% off the original retail price, and they won’t be as widespread as they were last year, she says.

How does the timing of my purchase affect my selection?

Most retailers have lowered their inventory levels for the 2009 holiday shopping season on average by 10% from last year, Driscoll says. This means that retailers ordered fewer products from manufacturers.

With lower inventory levels, stores are less likely to discount products early, instead waiting to see how many units consumers purchase. Retailers won’t decide to significantly cut prices until around Black Friday -- once they have a sense of how much inventory they still have, says Jeff Green, the president of Mill Valley, Calif.-based Jeff Green Partners, a retail consulting firm. In this case, the longer a consumer waits to shop, the more likely they are to find better deals.

Retailers say that consumers who are set on a particular item might run the risk of a sellout if they wait too long. As of the end of July, Macy’s (M) inventories were down 7.5% compared with last year, says Jim Sluzewski, a spokesman for Macy’s. He says the company expects its comparable sales to drop 5% to 7% between August and January, vs. this period last year.

“Last year, if you saw something in the store and liked it, the longer you waited the deeper the discount would get,” Sluzewski says. “This year, if you see something you like, it may not be there anymore if you wait because inventory is less.”

Green says this scenario is unlikely. “The consumer is more concerned about pressing things like jobs and housing to really be focused on Christmas,” he says. This week, the Conference Board, a New York-based business research group, said its Consumer Confidence index fell to 53.1 in September, down from an upwardly revised 54.5 in August. A reading above 90 indicates the economy is solid.