Forecasting December's Demand When Today's Is Hazy

If you think it's tough to get a read on how consumers are feeling now, think about what it's like for retailers who are trying to forecast how generous their customers will be at Christmastime.

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That's the problem retail buyers are confronted with right now as they begin to order their inventory for the fall and winter season.

There have been many signs that the economy is improving. Retail sales jumped in March and businesses increased their inventoriesat the highest rate since July 2008. Both are signals of higher demand, but the job picture remains cloudy.

For the past two weeks, the number of newly laid off people signing up for unemployment benefits rose sharply. This suggests that unemployment will remain stubbornly high.

No doubt many retailers agreed with Emanual Chirico, CEO of Phillips-Van Heusen , when he said he will likely feel better in the second half of the year, after he's seen a few quarters of accelerating consumer demand.

Stacy Janiak, who heads up Deloitte's retail industry research, said she expects retailers to continue to be cautious this year.

"I don't think we'll see a major ramp up in inventory," Janiak said. Still, retailers are likely to place bets selectively on certain items they think will appeal to their customers, and the items they pick may be slightly more expensive than last year.

Even in the darkest days of the recession, consumers showed a willingness to splurge on items they really desired. (Apple's iPhone comes to mind.) This trend will only accelerate as consumers gain more confidence about the economy and their own personal financial situation.

"Consumers are beginning to realize you can do something special for yourself and not break the bank," Janiak said.

Retailers also have become more adept at adjusting to their environment. This has been seen with how they have been more flexible and responsive with inventories to changes in consumer behavior, rushing out and restocking if an item appears to be more popular than expected.

It's also interesting that when the retail industry trade group, the National Retail Federation, released the results of a survey of the industry's strategic priorities for this year earlier Thursday, topping the list was expansion plans and spending on social media and Web site personalization.

"One of the overriding themes of the survey is that retailers are striving to do more with less," said Mark Larson, Global Head of Retail at KPMG, which worked with the NRF on the survey. Larson expects this theme to continue into 2010 and beyond.

Social media fits right into this. As Richard Hastings, a consumer strategist at Global Hunter Securities points out, many retailers turned to social media in the second quarter of last year as a low-cost method of obtaining customer loyalty and behavioral information, and that is helping retailers to better gauge their customers.

These themes also were evident in conversations CNBC recently had with executives. Children's Place and BJ's Wholesale were among the retailers discussing their plans for expansion. BJ's also said technology spending was a focusfor them as they need catch up with their competitors.

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