It should be a retailer’s recipe for a happy holiday season: low U.S. unemployment, rising personal incomes and millions of confident, free-spending consumers.
Indeed, the retail industry’s largest trade association is predicting that Santa will deliver a memorable Christmas. Holiday sales at the nation’s largest merchants are projected to rise by a healthy 5 percent to 6 percent in 2000, according to the National Retail Federation in Washington. That would be on top of a phenomenal 7.3 percent increase in 1999.
Still, there’s a chill wind blowing through the U.S. economy, and it’s not coming from the North Pole. High gasoline prices are eating into family budgets at the same time that costs for everything from prescription drugs to housing are on the rise.
Meanwhile, the nation’s outstanding credit card debt has hit a high of $635 billion, up 10 percent from last year, while the savings rate has turned negative, leaving families with smaller reserves to dip into. Stock market profits, too, are getting pinched.
The upshot: growing doubts about whether retailers will make their rosy projections.
“We’re looking at a fairly mediocre Christmas,” warns Carl Steidtmann, chief retail economist with PricewaterhouseCoopers, the national accounting and consulting firm.
He believes energy costs in particular will dampen the holiday spirit. “Higher gas prices are like a tax increase. They’ve taken $150 billion out of the pockets of consumers.”
Sid Doolittle, a veteran retail consultant in Chicago, agrees. “The retail business is not going to be that great this year. People’s incomes still look pretty good, but they’re paying more for the basics.”
Additional price shocks are coming, economic experts predict. The season’s first home heating bills, which are expected to be much higher because of spikes in the cost of natural gas and heating oil, aren’t even on the way yet.
Already, U.S. consumers are showing signs of watching their pocketbooks more carefully. After a strong start to the year, sales at many department store chains and some specialty retailers cratered this summer.
Case in point: Gap Inc., the retail parent of Gap, Old Navy and Banana Republic, has seen its same-store sales decline four months in a row. In August, sales plunged an alarming 14 percent.
Another ill omen: Consumer confidence as tracked by the Conference Board has been slipping in recent months, although it recovered slightly in September.
Blame stock market volatility for some of that shaken confidence, retail experts say. The Dow Jones industrial average now stands at 10,590, far from its January peak of 11,568.
The technology-heavy Nasdaq index also has taken a beating this year after the Internet bubble burst in the spring. It’s now at 3278, down more than a third from its March peak of 5132.
“Last year, we were all talking about the Wall Street wealth effect,” said Kurt Barnard, president of Barnard’s Retail Trend Report, an industry newsletter in Upper Montclair, N.J.
“That has dissipated. People have come to realize that Wall Street can go down as well as up, and that it is safer and far better to make oneself dependent on reliable sources of income such as your salary,” Barnard said.
Still, such downcast indicators aren’t enough to throw cold water on retailers who are still hoping for another bountiful Christmas.
Lauren Amerine, owner of Isabella Fine Lingerie, an upscale boutique in Lincoln Park, hasn’t heard so much as a whisper of economic concern from her base of professional customers.
“The economy is booming, booming, booming,” Amerine said. “When it comes to expensive French or Italian lingerie, no one is blinking an eye. I only hope I ordered enough stuff.”
Likewise, David Marshall, president of Chiasso, a chain of 13 gift and home accessories stores, also expects a strong performance.
“We’ve been building really good momentum heading into the holiday season,” said Marshall. “We’re projecting 10 percent sales increases for our stores.”
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Of course, Marshall is aware of what he calls the “conventional wisdom”–that the combination of higher gas prices and lower stock prices will dampen consumer enthusiasm for holiday shopping.
But he believes there will still be demand for Chiasso’s eclectic gift selections, including such items as $112 Michael Graves teapots and $65 glass champagne coolers.
However, other retailers are sounding a more conservative note. Sears, Roebuck and Co., the nation’s second-largest retailer, has warned that its fourth quarter may be slower than last year. Sears is planning more sales events of shorter duration to drive shopper traffic, Alan Lacy, Sears’ new chief executive, told analysts recently.
“We’re cautiously optimistic about the holidays,” Sears spokeswoman Peggy Palter said. “We think we’re positioned well as far as merchandise and marketing strategies go.”
Across the retail industry, the hottest-selling items are expected to be new electronic gadgets such as Sony Playstation2, the video game system; digital video disc players; digital cameras and home theater systems.
For kids, anything with a Harry Potter logo is expected to be popular. Borders Books & Music, for example, anticipates a brisk business in its Potter-licensed merchandise, such as calendars, games and puzzles that relate to the boy wizard’s adventures.
“Even the books are continuing to sell,” Borders spokeswoman Ann Binkley said.
Other stores will carry everything from Harry Potter figurines to bed sheets.
Besides that magical bright spot, there are remarkably few other must-have gifts this holiday season, retail experts note.
That fact, along with ominous signals from chains as diverse as Eddie Bauer and Pottery Barn, has many retail investors already sporting a Grinch-like frown.
Shares of Wal-Mart Stores Inc., the nation’s largest retailer, have fallen to $43.25 from their 52-week high of $70.25, even though the chain continues to post strong sales numbers.
Nordstrom Inc., once the favorite stock in the department store sector, has watched its stock plummet almost 60 percent from its high, while Target Corp., another darling of the retail sector, has seen its share price drop almost 40 percent.
Still, if any retail segment is going to do well this holiday season, it’s likely to be discounters, who cater to value-conscious shoppers, and ultra high-end retailers such as Neiman Marcus Group and Tiffany Inc., which target the recession-proof upper crust, retail experts predict.
Of course, if retailers do have a rough holiday season, that could translate into good news for procrastinating shoppers. Retailers amassed inventories based on the friendlier projections of earlier this year, and if all those goods aren’t moving out the door by mid-December, experts say, look out below: Prices will be slashed.