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Holiday outlook bright for retail: Online sales, gift cards expected to bring cheer

November 27, 2006

Retailers are optimistic they won't find a piece of coal in their stockings this winter.

Veteran jeweler Greg Bires has labored in retail long enough to recognize when a robust holiday shopping season is starting to take shape. Fortunately for the owner of the downtown Windsor Jewelers, this should be another strong year, experts predict.

"So far, things have been pretty positive," Bires said. "It's been a long time, but I've seen years when you knew things were going to be a little soft. They can always be better, but sales have not been weak by any means."

New York-based financial firm Deloitte & Touche USA LLP is equally cheerful. Its 21st annual holiday survey polling 13,399 consumers, including 444 Hoosiers, forecasts national retail sales will rise 7 percent from last year.

That number is slightly lower than the 7.8-percent increase registered in 2005.

Bullish on economy

An economic rebound following Hurricane Katrina was responsible for last year's boost, said Pat Conroy, a locally based vice chairman of Deloitte, who is in charge of its consumer business practice.

"Foremost among all of [those surveyed] is that they're very bullish about the economy," he said. "Wages are rising and unemployment is down. The moment of truth will be when they get to the register."

Consumer confidence indeed is healthy. Nationally, 67 percent of survey respondents think economic conditions will remain the same or improve. Optimism in Indiana is nearly identical.

Yet, Indiana consumers take a more cautious approach with their pocketbooks and plan to spend just 2.7 percent more than last year, Deloitte said. Hoosiers, according to Deloitte, don't purchase as many presents as shoppers in other parts of the country.

The Indiana Retail Council, which has 300 members representing 4,000 stores, is a bit more upbeat. It expects Hoosiers to spend 5 percent more than they did in 2005.

"Unemployment nationally is low and gas prices are down, giving shoppers more money for holiday shopping," Council President Grant Monahan said. "Now that the elections are over, that uncertainty is behind us. All of that bodes well for this holiday season."

Discount department stores such as Wal-Mart, Target and Kohl's will be the largest benefactors, both nationally and in Indiana. More than 81 percent of Hoosiers surveyed said they plan to do the bulk of their shopping at chain stores, compared with 73 percent nationally.

The day after Thanksgiving-known as Black Friday because it used to mark the date when retailers turned a profit for the year-is still seen as the traditional start to the holiday shopping season.

But Wal-Mart began turning up the heat on its rivals by marking down prices in October and adding more name-brand products, which might make it even tougher for competitors to stick to their pricing plans.

Wal-Mart's attempt to improve sales follows disappointing third-quarter results. Although the world's largest retailer earned 63 cents per share, beating thirdquarter analyst estimates by 4 cents, U.S. sales rose only 1.5 percent. Executives blamed a fashion miss with its trendier clothing lines.

The company also has predicted fourthquarter earnings would be down to between 88 cents and 92 cents per share. Analysts had expected 92 cents a share.

"I'm not as pessimistic as Wal-Mart, but I just don't think it's off to the races," said Anthony Chan, chief economist for JPMorgan Private Clients Services in New York. "We will get another decent year, just not a spectacular year."

Web shopping

While the volume of holiday spending is uncertain, one thing is clear: More consumers will be shopping online. In fact, a Purdue University retail expert predicts Internet sales will increase 20 percent, from $20 billion in 2005 to $24 billion this year.

Online shopping is growing, but still accounts for just 8 percent of all holiday sales, said Richard Feinberg, director of the Purdue Retail Institute and Center for Customer-Driven Quality. He said free shipping offers are helping to drive people to the Internet.

Indeed, 70 percent of consumers indicated in a poll by New York-based Harris Interactive that free shipping is a factor when shoppers use the Internet.

That hardly matters, however, to the growing number of consumers choosing to forgo the frenzy of the mall in favor of stuffing the stocking with a hassle-free gift card.

In the cards

The cards rank as the most popular gift item this year both nationally and in Indiana, according to the Deloitte survey. More than 65 percent of shoppers nationally and 69 percent in Indiana plan to buy at least one card, or an average of 4.6 per customer, the survey said.

A positive for retailers is that they are redeemed for non-sale merchandise, which means the profit margins are higher, Conroy at Deloitte said. The down side is that consumers who purchase the cards shop at fewer stores and spend less time browsing.

"The worst thing you want as a retailer is for someone to walk in and buy a piece of plastic and walk out," Conroy said. "Then the age-old challenge is getting them to redeem them."

That's vexing for retailers because they cannot claim the revenue from the cards until after items are purchased.

Clothing, CDs and DVDs, toys and games, and books trail gift cards in the Deloitte ranking of the most popular gifts.

Retailers in Indiana better hope the promising forecasts ring true, because most Hoosiers indicated in the survey they don't plan to take advantage of any postholiday sales.
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