Analysts forecast weak holiday sales

Retail sales this Christmas won’t be very merry, according to analysts who spoke at “Christmas 2002, The Retail Forecast” on Oct. 23 at the Fashion Institute of Technology, New York. The half-day conference was presented by the Retail Marketing Society in partnership with The Retail Research Team, Merrill Lynch & Co. Inc., at The FIT’s Center for Professional Studies.

Insight into consumer confidence figures started off the program. “There are no indications that consumers will go on a spending spree, [retail] growth will take off, or that we’ll retreat into a recession,” said Lynn Franco, head of the New York-based Conference Board. Supporting evidence lies in the Conference Board’s present situation index, which gauge’s consumers’ spending patterns, and the expectations index, a measure of gross domestic product growth. The economy is in a recovery trend right now, she added, so expect holiday sales to mirror last year’s levels.

Next, Daniel Barry, managing director and senior retail analyst, Merrill Lynch, New York, speculated about the holiday season’s retail sales. “We’re going to have a bad Christmas,” said Barry, urging attendees to look at recent U.S. Census Bureau general merchandise sales as proof. In particular, he noted four reasons for the anticipated weak sales: a slowdown in employment and real wages, a shorter holiday season (by six days), special factors such as high auto sales in 2002 (thus indicating fewer purchases at retail), and the post-9-11 sales surge, suggesting that consumers spent “inordinate amounts” on general merchandise last year during the holidays because the recession was bottoming out. Overall, Barry expects U.S. general merchandise sales for the November-December 2002 period to be 1.5% lower than last year. He mentioned that some in the industry were banking on mortgage refinancing to free up consumers’ discretionary income, but those few dollars historically offer very little comfort to retailers.

Merrill Lynch’s retail analyst and first vice president Mark Friedman, who covers specialty softline goods, including accessories, noted that opportunities abound for retailers this holiday season. In particular, the nation is experiencing a pent-up demand for novelty and fashion items, and retailers who offer well-priced unique merchandise will benefit. “There is continued strength in jewelry, scarves, and bags,” he says. “Many of our specialty retailers offer limited selections of jewelry because it’s easier to gift than clothes.”

Some insight into worldwide fashion trends came from Jamie Ross, creative director with the New York-based Doneger Creative Services. Her general message was that holiday shoppers want new looks. For jewelers, need-to-know accessory trends are novelty belt buckles featuring coins and semiprecious stones, novelty handbags with gold or metallic finishes, pendants—crosses, in particular—on leather cords, and chunky and/or charm bracelets.

For a peek into consumers’ store and product loyalty, Michael Hand with Cambridge, Mass.-based STS Market Research, took the floor. His research offers this advice to retailers: “Stop exanding [store operations] and gain more market share with existing customers and get higher margins.” Male and female consumers both find shopping to be a chore anymore, and because of frequent sales at many retailers, a sameness in much of the merchandise on the market, and little actual need for anything new, shoppers have only one good reason to buy anything: “Because they really want it,” Hand says. “You can’t do anything about the overall business environment, but you can build brand loyalty,” he says. To do so, you must sell more to your loyal customers, draw in your “almost-loyal” customers, and sell a higher percentage of goods at full price.

One strong category for the holiday season is home goods. According to Friedman, home products, including tableware, are still getting lots of attention in the marketplace, so adding non-apparel gift items to product and gift mixes is important. Ross’ research confirms this: “All of the global issues [in the world now] make [shoppers] think they want to stay home.” To appeal to these homebodies, offer collectible ornaments, glassware, and holiday-inspired tableware and novelty frames. Other hot products this year are electronics and video games, which Merrill Lynch’s vice president and retail analyst of hardlines, Doug Neviera, sees as a bright spot for retailers like Best Buy and Circuit City. “This will be one of the most promotional holidays in recent years, where consumers must see value, rebates, financing offers, and low prices in order to spend,” he said. On a final positive note for jewelers, Hand’s recent consumer research shows that men and women both are very likely to buy accessories this holiday season.

Some additional insights from the conference include:

* The luxury sector, including department stores, is doing a bit better than other retail outlets; Saks Fifth Ave and Neiman Marcus stores are among those benefiting from a slight increase in U.S. tourism this year.
* Poor sales in the general merchandise category will continue into 2003, but personal consumption expenditures overall could resist decline.
* A “defensive dozen” stocks that maintained good sales last year, including JC Penney, also should be reliable this year.
* After September 11, retailers had excess inventory; retailers need better gross margins to make this year count.
* Department stores will continue to lose ground to mass merchants, including Target and Kohls. Department stores may have a monopoly on brands, but department stores also have a consistently older population.
* Towards 2010, super-center growth will be noticeable.
* Traditional retailers have Web sites, but don’t put a lot of money into them because growth is slow. These same retailers spend about 2% of total sales on annual advertising ventures, and typically cut back on ads during recessions.
* Catalog and Internet vendors still could benefit from a continued nationwide nesting trend.
* The West Coast port strike could adversely affect retailers’ holiday shipments and ultimately hurt margins (though off-price retailers such as the TJX Company’s TJ Maxx and Ross could gain).