Despite hard times, retailers expect holiday-sales growth

McClatchy NewspapersNovember 21, 2008 

WASHINGTON — The economy appears headed toward the deepest recession in modern times, consumer confidence is at record lows and personal wealth is being destroyed daily on Wall Street. Against that backdrop, retailers must convince weary Americans to pull out their wallets and shop this holiday season.

"What you are seeing is a perfect storm in terms of weakness in core economic indicators, each of which is having a negative effect on the consumer, and because of that it is having a profound effect on the retail industry," said Scott Krugman, a spokesman for the National Retail Federation.

The challenges will be big and small. Almost three-quarters of consumers haven't started holiday shopping yet, waiting for sales. Gift-card spending is projected to fall 5.6 percent as people pull back and shop for bargains.

Consequently, the federation, a trade group in the nation's capital, expects national sales to be slightly off last year's slow pace. Over the past decade, holiday sales have averaged 4.4 percent annual growth, but they're expected to grow this year by a milder 2.2 percent. That's below even last year's sluggish 2.4 percent rate.

Still, it's growth, and if it happens, that'll show once again the resiliency of the American consumer. Hard times or not, Christmas is about spending.

"I'm going to spend about the same," Ellery Queen said, coming out of a Macy's in Washington. "I make as much as last year, so it's the same for me."

Holiday retail sales grew by a robust 5.6 percent in 2001, as the nation recovered from a downturn and the aftermath of the 9-11 terrorist attacks. President George W. Bush made shopping patriotic then: He encouraged Americans to go out and buy to keep the economy thriving.

Today's problems go beyond the economic downturn that's clouding this holiday season, which means it'll be a struggle even to meet the lukewarm growth estimates. One reason is that credit-card companies are rapidly yanking bank lines of credit from consumers saddled with debt, fearing a rise in defaults as unemployment soars.

In addition, electronics chains aren't offering big financing deals as before, as credit markets remain dysfunctional and banks are in turmoil.

"Right now, I would imagine discounters are in a better position in this type of an economic downturn, as more consumers are looking solely at price," Krugman said. "I think this year is going to be about the smaller-ticket item."

Sharing that glum assessment is the National Federation of Independent Business, which represents small businesses, including retailers and restaurant owners.

"They're very pessimistic about the real volume of sales they're going to have," said William C. Dunkelberg, the group's chief economist, who surveys members monthly. "We've got the highest percentage of (gloom) we've ever seen in the history of the survey reporting."

Price cutting and sales pitches can take retailers only so far, he said.

"If people are not coming in, you can't do too much about that. You can try to entice them in with reductions, but profits take a hit," he said. "Consumers are going to save more, and that's that. And that's going to affect you whether you are a Neiman Marcus or Wal-Mart."

Lower-end retailers are going to do relatively better than high-end, he said.

"The fundamental driver is still going to be income growth, which is negative, and job growth, which is negative, and the heavy burden of debt," Dunkelberg said.

In a survey released Friday, the Conference Board, a New York business-research center, found that U.S. households expect to spend an average of $418 on holiday gifts this year. That's down from last year's estimate of $471.

"Consumers are in a cost-conscious mood heading into the holiday season, and they intend to spend less this year than last year on gifts," Lynn Franco, the director of the board's consumer-research center, said in a statement. "This is shaping up to be one of the most challenging holiday seasons in years, and it's going to take more than the usual discounts and incentives from retailers to get consumers to spend more freely."

Given the deep economic slump, retailers are working hard to convince shoppers to spend.

"I think what you're seeing is discounting is pretty aggressive," Krugman said, adding that marketing pitches are being fine-tuned. "Retailers are trying to make that emotional connection for the holiday season. There's a lot of nostalgia being used in the marketing."

Also, old-fashioned offerings such as layaway are back in the mix. Layaways allow people to pay for items over several months or spread over several payments, while the retailers keep them in storage.

Kmart has offered layaways for decades, but it began promoting them heavily in early October as the economic storm clouds gathered.

"To our benefit, we've been able to kind of listen to what consumers were telling us, and do some things that have helped . . . going into the holidays," said Tom Aiello, a spokesman for Sears Holdings, which owns Sears and Kmart.

As of mid-November, Sears began offering layaway again, too.

"It gives consumers a very viable way to still have a good holiday, to take advantage of sales or specials they see earlier without having to rely on credit cards," Aiello said.

The other major merchandising change this Christmas is early sales. Sears, Kmart and other retailers aren't waiting until the day after Thanksgiving — called Black Friday, as it's the day that many retailers trade in the year's red ink for black — to offer sale prices for the holidays. Sunday circulars advertise 40-50 percent off some items, and retailers will offer so-called door-buster items before Thanksgiving.

"We're not waiting on all of those. There's going to be a really greater deal that they're going to have for consumers," Aiello said.

Retailers hope that the ghosts of Christmases past will keep shoppers lining up at the registers, despite today's trying times.

"People are still wanting to have a good Christmas. That means buying toys for the children, so certain things are not going to change from previous years," Aiello said. "It then becomes just much more sensitive frugality, and making sure I do get the most value for the budget I do have for the holiday."

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