Retailers face not-so-happy holidays

If September's dismal sales figures are any indication, shoppers are bracing for bad times and will scrimp on holiday buying. For stores, this could be the worst Christmas season in years.

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By Elizabeth Strott, MSN Money

There likely will be little cheer for retailers over the holidays this year.

Analysts caution that it could be the worst Christmas shopping season in years as a slumping economy and a tight credit market lead many Americans to scale back spending.

Retail sales look 'miserable'

"My shopping habits have changed drastically," said Debbie Jarvis, a homemaker in New York City. "When the economy was good, I used to enjoy Christmas shopping. In the past, I would have started shopping already. I would be purchasing decorations for the house and gifts. Everyone in the house would receive more than one gift.

"Now I am going to wait for the sales and limit the amount. The lucky person to get a gift may just be my granddaughter, since my kids are adults."

Do you really NEED that gift?

'Bah, humbug' holidays

Analysts aren't talking about a mere downturn in spending. They're talking about a wipeout.

The explanation isn't complicated. Consumers just don't have the cash.

It's time for cutbacks

"Higher energy and food prices are making a dent in consumers' wallets, and the dramatic drop in home mortgage refinancings has dried up a substantial source of discretionary funds," Carl Steidtmann, the chief economist with Deloitte Research, said in his holiday forecast.

Steidtmann also mentioned "rising unemployment claims and a volatile stock market" as additional factors likely to make the holiday season challenging.

The National Retail Federation's outlook is a little less grim, but it's still bad. The group expects 2008 holiday sales to rise 2.2%, to $470.4 billion -- well below the 10-year holiday average of 4.4% growth. That would make it the slowest growth since 2002, when holiday sales rose 1.3%.

Tell us: Plan to spend less on holidays?

"We expect consumers to be frugal this season and less willing to splurge," the retail federation's chief economist, Rosalind Wells, said in her forecast.

Not all retailers will suffer

Consumers and retailers from all demographics and sectors have been hit by the economic slowdown, but there are still a few retailers that could do well.

"The deep discounters, the dollar stores -- places that people may not have frequented as much -- are probably going to see a lift," said Stacy Janiak, a retail analyst with Deloitte.

"I think everyone else is going to be fighting to demonstrate what value they can bring to the consumer," Janiak said.

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She believes retailers on the upper end of the demographic spectrum will focus on customer loyalty, hoping consumers stick with some established shopping habits despite their tighter holiday budgets.

"Changing your long-term shopping habits doesn't happen overnight," Janiak said.

She expects higher-end retailers to put heavy emphasis on coupons and other discounts.

"If there's a reason you're loyal to a retailer, and they make it easier for you to stay with them, then you're more apt to do that, as opposed to trying to find another store," she said.

Lower GDP, more store closures

Consumer spending makes up about two-thirds of the U.S. economy. Economists now expect that third-quarter figures will show the first decline in spending in 17 years and that gross domestic product will post a decline for the first time since 1991.

September was a turning point for many consumers. That's when the overall economy shed a whopping 159,000 jobs, according to the Labor Department. It was the ninth month in a row of job losses. At the same time, the turmoil in the stock market hit the boiling point. As a result, many people started to change their spending habits.

Talk back: Cutting out holiday gifts?

In fact, consumers spent less in every category than they did a year earlier, according to September data from MasterCard Advisors. Shoppers spent 5.5% less on apparel, 13.3% less on furniture and 13.8% less on electronics and appliances.

"Consumers are bracing for recession," Ken Perkins, the president of Retail Metrics, said in a report Oct. 9. "Credit will continue to be very difficult to come by through the holiday shopping season, and the jobs market is likely to further deteriorate."

The November-December sales season can make up 50% of retailers' annual business, so weak holidays could spiral into more store closures and more job losses in early 2009. Retail consulting firm Strategic Resource Group now expects up to 1,500 stores to close in January and February alone.

Weak September sales

Retail sales fell 1.2% in September, and that was before the mayhem in the stock market shifted into high gear. Sales at stores open at least one year rose a meager 1% in September, according to the International Council of Shopping Centers. It was the weakest September performance since 2001. Same-store sales of 3% indicate healthy consumer spending.

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The numbers speak for themselves:

  • Abercrombie & Fitch (ANF, news, msgs) saw a 14% plunge.

  • High-end department-store chain Nordstrom (JWN, news, msgs) reported a 9.6% decline.

  • Wal-Mart (WMT, news, msgs) reported a smaller-than-expected 2.4% increase.

Since the beginning of the year, more than 20 retail chains have filed for Chapter 11 bankruptcy protection or gone completely under. If September's sales numbers are any indicator of what's to come this holiday season, it won't be a happy new year for retailers.

Published Oct. 24, 2008