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Deloitte's Holiday Sales Forecast: A Note of Caution, A Ray of Hope

Wednesday, 28 Sep 2011 | 8:57 AM ET

Amid all the gloom and doom, forecasts have been trickling in for retail sales during the upcoming holiday season, and surprise: they’re not so bad. But before you get excited, they’re not that great either.

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The latest, which is from Deloitte’s retail and distribution practice, projects retail sales will be up between 2.5 and 3 percent, or between $873 billion and $877 billion, during the November through January holiday period. Last year, retail sales rose 5.9 percent during that time.

Deloitte’s forecast is within the range of other forecasts that were previously issued so far this month.All are sounding notes of caution, but are still leaving room for shoppers to surprise retailers with a little something extra for the holidays. After all, it is a season known for miracles.

Research firm ShopperTrak is predicting a 3 percent increase in retail sales in November and December, while Kantar Retail calls for retail sales growth of 2.8 percent andthe International Council of Shopping Centers is looking for a 2.2 percent increase.

Clearly, retailers will be fighting hard to get their share of the slim gains that will be seen.

One factor is that retailers are facing tougher comparisons than they did in 2010, said Alison Paul, vice chairman of Deloitte LLP and leader of U.S. retail practice.

But with high unemployment, fears of another recession, a weak housing market and the European debt crisis weighing on consumer confidence, it is wise to be cautious.

Until now, spending has been creeping higher despite the glum mood. However, if conditions in any of these areas worsen or improve, the outlook for the holidays could change.

These factors could tilt actual spending in either direction, according to Paul.

One thing that is more certain, according to Paul, is the steady shift of consumers to online shopping. Deloitte estimates so-called non-store sales will rise 14 percent in November through January. The bulk of the non-store sales, about three-quarters of it, comes from online shopping, but the rest of it consists of catalog and interactive TV purchases.

Paul expects we’ll hear a lot of retailers talking about their omni-channel capabilities this year, and indeed we have already had Toys ‘R Us issue a press release about this topic.

Omni-channel is a word retailers use to describe the integration between their physical stores and their online store. Many times this capability allows consumers to shop for an item online and pick it up in the store, or to purchase an item and allow another person to pick it up in another city.

It sounds like a no-brainer, but it is a complicated issue for many retailers.

Take Target, and its recent bungling of the Missoni launch. One problem the retailer had was managing the mad rush of customers to purchase the Missoni items online. In some cases, Target didn’t actual have the inventory it was selling and orders were backordered, or worse, cancelled.

In Target’s case, it appears the volume of customers seeking the same items was what exposed the short-comings of its system. But for other retailers, there are other challenges. For example, how do stores handle merchandise that is an “online only” offering when it gets returned to the store? That is a problem that needs to be addressed in this new environment.

But retailers that can put their websites and mobile applications to work for their physical stores, they will have an advantage, Paul said.

“The brick-and-mortar store is still central to the shopper experience,” she said. “Retailers that integrate the power of the sensory experience in-store with relevant, timely information via their websites and mobile applications are well-positioned to lead the way this holiday season.”

And with holiday sales gains expected to be smaller than last year, it will be the retailers that can be the most nimble that will be joyous on Christmas Day. They will be able to see their sales rise above these forecasts, while those who cannot compete will be left with a lump of coal in their stocking.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.

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