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Five Reasons US Retailers May Have Jollier Holiday This Year

Don't believe the drop in consumer confidence. Shoppers may be more willing to spend again soon.

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Most of the early reads on how retail sales will shape up for the Christmas holiday period haven't been all that jolly. At best, they have painted a picture of a shopping season that will be better than last year's dismal turnout. But, according to some industry analysts, there are several reasons to believe that Santa might bring retailers a little joy this season.

1. Frugal Fatigue

Speaking on a conference call hosted by Dow Jones analyst Indexes and STOXX, Marshall Cohen, chief industry of market researcher NPD Group said consumers are getting tired of watching their pennies.

"Consumers are clearly telling us they are beginning to get tired of saving money," Cohen said.

It has been more than a year since the economy started putting the pinch on consumer pocketbooks. Consumers have been trying to get their debt under control, and have pushed up the savings rate to decade-high levels. The holidays may finally give consumers a reason to start spending again.

However, Cohen warns, he expects consumers to have shorter shopping lists. For those who make the cut, gifts may be purchased that equal or even top last year's level.

What about those left in the cold? Consumers may give homemade gifts or smaller trinkets.

2. Store Traffic Is Increasing

Have you noticed more folks at the store lately? ShopperTrack has, according to data analyzed by Richard Hastings, a consumer strategist for Global Hunter Securities. Hastings said he has seen signs of both year-over-year and month-to-month gains in the numbers of shoppers at the stores.

The increased store traffic is one signal that has prompted Hastings to boost his forecast for holiday sales. Although he previously expected sales to fall, he now anticipates retail sales for the November through January time period will rise 2.5 percent from last year.

While this is more rosy forecast than the one provided by industry trade group the National Retail Federation, which is calling for sales to decline by 1 percent to $437.6 billion, this has to be put in perspective.

Last year, sales fell at a pace that topped any prior recorded data. By the NRF's measure, holiday sales were down 3.4 percent, significantly below the ten-year average of 3.39 percent annual growth.

Hastings' forecast looks at a longer time frame, and his measure puts last year's sales down 7.6 percent. So even if sales meet his estimates this year, retail sales will still be down about 5 percent from 2007.

3. Improved Guidance from Smaller Retailers

Another sign that things are starting to turn for retailers is the improved forecasts issued by even smaller retailers such as Bon-Ton Stores, Tuesday Morning

and Pier 1 Imports.

Hastings said these comments are a sign that a new tide is coming in and "the smaller boats are being lifted up by a bigger wave."

According to Hastings, Pier One's improved outlook is particularly noteworthy because the market for home furnishings has been very dismal, and he believes the category offers a real glimpse into the "real psychology" of the consumer.

4. The New Normal

It just may be that consumers are finally comfortable with the new landscape. They have been spending carefully and planning for the holidays.

Retailers also have had time to plan, and with advancements in the way retailers track their inventory, are more capable to reacting quickly to chances in demand.

This is another factor Hastings cited for his forecast. He feels retailers are much more capable reaching a "new equilibrium" than in past downturns.

"Five to seven years ago, they would have stayed in a state of chaos for two to three years," he said. Now, with better management tools, the period of adjustment is about nine months, he said.

5. Weather

Weather may also play a role. Trends are aligning right now for better weather than last year, according to Paul Walsh, of Atmospheric and Environmental Research. For example, AER ,a Boston-based firm that analyzes the impact of climate change on business operations, expects, colder temperatures in December for the eastern part of the country, which could put consumers there in the holiday mood.

Weather has already played a key role in helping to boost retail sales in Septemberby driving more sales of warm weather apparel before retailers marked down the cost of those items.

Still, there are some wildcards to these emerging trends. Hastings mentions the dollar's continued decline, teen unemployment, and the role of gift cards on sales.

If the dollar continues it's downward trend, gasoline prices are likely to rise. That means less cash in consumer wallets.

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Gift cards may be one of the biggest wildcards this holiday season. According to NPD Group Vice President Ellen Davis, gift cards top the list of items consumers want to receive as gifts.

However, if consumers continue to be bargain hunters, they may steer clear of gift cards as they did last year.

Gift cards are important because they help drive sales after Christmas and into January.

Although this holiday season lacks must-have gift items. Teens are looking to receive jeans and graphic designed T-shirts. This may mean teens receive gift cards to select these items themselves. If this plays out, it could help drive sales in January, long after the decorations are packed away.

As for the employment picture, that could play an important role, as it did in the latest read on consumer confidence.

The Conference Board, an industry group, said its index of consumer attitudes slipped to 47.7 in October, its weakest level since July and below analyst estimates. The lost ground was owed to concerns about employment.

But Hastings believes that fear about jobs hit its "psychological peak" in late last year

Still, the NRF's Davis is not so sure. One of their lastet surveys show 73 percent of Americans say the job market is their signal the recession is ending.

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