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Retailers hope to buck holiday predictions: Optimism found in online sales, busy Black Friday

December 3, 2007

High oil prices and a continuing credit crunch have many retailers bracing for a blue Christmas.

Holiday sales this year are expected to grow a modest 4 percent, according to some retail experts, which would be the weakest pace in five years. The ominous forecasts prompted retailers to unveil promotions in October, although the official start of the shopping season was the day after Thanksgiving, traditionally known as "Black Friday."

Stores likely will rely upon a variety of incentives to entice consumers to open their wallets, said Grant Monahan, president of the Indiana Retail Council. Ideally, his membership would like to see growth in the range of 6 percent to 7 percent.

"I think you'll see heavy promotions throughout the holiday shopping season," he said. "There's no doubt in my mind about that. This will be a tough holiday season."

If the Black Friday weekend was any indication, however, the outlook might not be as bleak as predicted. Consumer electronics retailers posted strong sales, analysts said, pointing to robust demand for televisions, laptops and MP3 players.

ShopperTrak RCT Corp., a research group that tracks sales at mall-based stores nationwide, said total sales for at least 45,000 retail outlets rose 6 percent, to $9 billion, on Nov. 23, compared with Black Friday a year ago.

But a survey conducted by the National Retail Federation found shoppers spent an estmated $348 each-down from $360 the previous year.

It is estimated consumers will spend $475 billion to $500 billion this holiday season, or about 4 percent more than last year. Spending is projected to be the slowest since sales grew just 3 percent in 2002.

The Center for Education and Research in Retailing in Indiana University's Kelley School of Business is slightly more optimistic, predicting retail sales will rise 4.9 percent over the fourth quarter a year ago.

Economists and retail experts point to high fuel prices and the housing slump as the biggest factors behind consumers watching their wallets.

Richard Feinberg, a researcher at Purdue University's Retail Institute, likened the fuel prices to a tax on consumer spending. For every dollar spent on fuel, he said, one less dollar is spent on gifts.

"I think oil prices are the significant contributor," Feinberg said. "People with less money are more affected, so discount stores will be hurt more."

Even so, Wal-Mart, the world's largest retailer, could surprise analysts and perform better than expected. It reported third-quarter profit surpassed projections and hinted that consumer spending might be stronger than anticipated this quarter.

The results showed that heavy discounting during the period did not hurt margins, which the company said bodes well for the fourth quarter. The news helped lift the Dow Jones industrials 320 points Nov. 13. A day earlier, a turbulent session pushed the Dow below 13,000 for the first time since August.

Conversely, the housing slump led Home Depot to lower its full-year forecast for profit from continuing operations to a decline of as much as 11 percent. The nation's largest home improvement store posted a 27-percent drop in third-quarter profits.

Frank Badillo, senior economist for TNS Retail Forward, a consulting firm in Columbus, Ohio, predicted the weakness in sales will extend beyond home improvement and permeate other retail sectors.

"The credit crunch will lead to a consumer crunch by the holidays," he said in a recent forecast.

Not all forecasts gloomy

The entire outlook for the holiday season does not warrant a lump of coal in the stocking, however. To the contrary, sales originating from online shopping sites yet again are expected to rise.

Online sales are estimated at $45 billion to $50 billion, up from $34 billion last year, Feinberg said. Fueling the growth is improved customer service and more perks to steer consumers to the Internet. Free shipping, Web-only discounts and gift wrapping are among the assortment of offerings.

Free shipping is becoming increasingly attractive to consumers, Feinberg said. And for retailers, the incentive lures shoppers back to the site and increases the probability they'll purchase more items.

"Online shopping continues to grow as more and more people become comfortable with the Internet," Monahan at the Retail Council said. "As all of us are more pressed for time every year, many people turn to the Internet to get a leg up on their shopping."

Monahan prefers the traditional brickand-mortar shopping experience and urges consumers to shop locally. But many of his members have interactive Web sites, so the trend is something that no longer can be ignored, he conceded.

Despite the ease of shopping online, more consumers are turning to gift cards to supplement loved ones' wish lists. Sales of the cards are expected to jump 25 percent, to $35 billion, this holiday season, according to Consumer Reports National Research Center. A Consumer Reports survey of 1,000 adults interviewed in October found that six in 10 shoppers plan to purchase gift cards.

But the consumer organization is advising shoppers to think twice before purchasing a gift card. That's because more than a quarter of all gift cards are lost, expire or are never spent, the group warned. The loss is estimated at $8 billion.

This year, there are 32 shopping days separating Black Friday and Christmas-the maximum number possible. But Feinberg said more time to shop does not equate to more sales.

Electronics, jewelry, video games/CDs/DVDs and clothing are expected to be the most popular items purchased this holiday season.

That's good news for Marc Aronstam, owner of Aronstam Fine Jewelers at Keystone at the Crossing, although the veteran jeweler has a loyal clientele that has sustained business for 22 years.

Another factor is that the price of gold is above $800 and has been on the rise since mid-August as a struggling U.S. economy has weakened the dollar. Aronstam, though, never advises people to purchase gold strictly as an investment.

"What else can you buy someone that they'll get that much active use out of?" he asked.
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