The smell of consumer price deflation once again begins to waft through the air.
Fearing the mediocre sales that so many had predicted, department stores and specialty shops sharply marked down merchandise - particularly clothes - in the week before and after Christmas. The strategy brought a surge in traffic for many stores, but analysts said yesterday in reports and interviews that they were concerned that so many markdowns might hurt profits.
"We saw some of the most excessive markdowns at stores, including Ann Taylor, the Gap and the Limited's Express division," said Mark A. Friedman, a first vice president at Merrill Lynch, who covers retail stocks. Asked if he was concerned about the level of markdowns, he said, "Yes, we think there will be more earnings pressure," which may mean lower earnings.