IE 11 is not supported. For an optimal experience visit our site on another browser.

Retail trade group offers weak holiday forecast

Holiday sales are expected to grow at the slowest pace in six years as shoppers worry about jobs, the housing and stock markets and high gas and food prices, according to a trade report.
/ Source: The Associated Press

Holiday sales are expected to grow at the slowest pace in six years as shoppers worry about jobs, the housing and stock markets and high gas and food prices, according to a forecast from the National Retail Federation being released Tuesday.

The outlook from the retail trade group joins other weak holiday predictions issued so far that will likely lead to aggressive discounting and pre-Thanksgiving sales blitzes as stores try to pry dollars from frugal shoppers.

Merchants have also scaled back holiday inventories and seasonal sales staff from a year ago. The challenges are compounded by a holiday season that has five fewer days between Thanksgiving and Christmas Day than in 2007, which could make consumers delay their buying.

"You don't have a good picture," said Rosalind Wells, the NRF's chief economist. Last week's financial turbulence, from Lehman Brothers filing for bankruptcy protection to a proposed $700 billion government bailout of the financial system, "only increases the uncertainty and anxiety," she said. Wells said she doesn't expect an economic turnaround until the second half of next year.

The Washington-based trade association predicted that total holiday sales will rise a modest 2.2 percent for the November and December period from a year ago, to $470.4 billion. That would be below the ten-year average of 4.4 percent holiday sales growth and a bit below the 2.4 percent gain last year. It would also be the slowest pace since 1.3 percent in 2002.

Total retail sales figures from the NRF exclude business from auto dealers, gas stations, and restaurants. The estimate also excludes online sales and reflects last week's financial turmoil, Wells said.

Two other forecasts, from Deloitte LLP and TNS Retail Forward, that were made before the recent market turbulence had predicted the weakest holiday growth since 1991 — though they use different metrics.

Deloitte LLP expects total holiday sales — excluding motor vehicles and gasoline, but including online sales — to rise 2.5 percent to 3 percent in the November through January period, less than last year's 3.4 percent gain. A rise of 2.5 percent to 2.8 percent in that period would be the smallest gain since 1991, Deloitte noted.

TNS Retail Forward, a global market information group, sees retail sales rising 1.5 percent in the October through December period, the weakest performance since 1991. The figure includes online sales but excludes sales from gas, supermarkets, restaurants, drug chains and autos.

The downbeat forecasts come as many retailers have already suffered from a weak fall shopping season. While autumn selling isn't a predictor of holiday sales, it's seen as a barometer of consumers' willingness to spend. And right now, shoppers don't seem to feel generous. While they have been squeezed by high gas and food prices, they are also contending with a weak job market and tighter credit. Last week's financial turbulence could further rattle people's confidence, which was near historic lows in August, according to the Conference Board. The group is expected to release its latest reading on Sept. 30.

Stores are closely monitoring what's happening on Wall Street as lawmakers rush to put their imprint on the Bush administration's massive plan to save financial markets. Any more upheaval could lead to stores' retooling their plans, including hiring. Holiday hiring is already likely to fall significantly short of last year's total, which was the lowest since 2003, according to job placement consulting firm Challenger, Gray & Christmas.

Given the anemic environment, Wells expects discounters to keep faring well as shoppers focus on price. Joshua Thomas, a spokesman for Target Corp., which has been hurt in this weak economy because of its emphasis on nonessentials such as trendy jeans and housewares, said the chain is focusing on gifts under $25 in its holiday marketing.

Chris Byrne, a New York-based toy consultant, said that toy sales could suffer too as parents may cut back. "Consumers are nervous about what they are going to spend. They may buy fewer toys," he said.

Byrne believes, though, that there will be isolated hits. He cited Elmo Live, made by Mattel Inc.'s Fisher-Price unit, which will be in stores Oct. 14, as well as anything related to "Star Wars" and Bakugan, action figure warriors from Spin Master Ltd. that he said have been very popular.

Mall-based apparel stores will likely keep struggling, as shoppers cut back on discretionary spending or shift their buying to stores such as T.J. Maxx, which offers major brands at discounts.

Analysts are closely monitoring luxury stores, whose sales have slowed in recent months. Goldman Sachs analyst Adrianna Shapira noted in a report last week that New York City luxury flaghips are unlikely to remain bright spots amid Wall Street's turmoil.

"The slowdown will undoubtedly ripple beyond NYC to impact others tied to high-end spending such as Coach, Nordstrom and Ralph Lauren," Shapira wrote.