×

Stores Brace for Another Christmas with Scrooge

In the retail business, it is never too early to think about Christmas. So a lot of people are thinking about it, and taking surveys to test the mood of the American consumer, and deciding that this Christmas will be as bad as last — which is to say, one of the worst on record.

sale_further_reductions_200.jpg
Sharon Lorimer

Retailers are relieved to hear that prediction. Flat sales this holiday season would at least mean that things had stopped getting worse.

“It’s reflective of this ‘new normal’ we’re in,” said James Russo, vice president for global consumer insights at the Nielsen Company. “Flat is good.”

Over all, the retailing industry posted a sales decline of about 2 percent last Christmas season, the weakest performance since the late 1960s, when the Commerce Department began tracking holiday sales figures. Results for stores that sell clothing and luxury goods were far worse, typically declining by double digits. By contrast, several reports published in the last few days, including surveys by Nielsen and Deloitte, forecast no change in holiday sales from last year to this year.

While recent economic reports have been mixed, several indicators suggest the economy is beginning to improve. But the turnaround, if it is real, has yet to filter through to retail sales, which are closely tied to the unemployment rate. That rate worsened more than expected in a government report on Friday, rising to 9.8 percent.

Analysts say that many consumers are still worried about their jobs, their stock portfolios and the value of their homes. They remain hamstrung by a tight credit market. Few experts foresee a robust recovery in consumer spending until the unemployment rate starts heading down, perhaps sometime next year.

If a mood of thrift and penury continues into the holiday season, retailing analysts said the beneficiaries, not surprisingly, would be discount and dollar stores, warehouse clubs and Internet retailers, as shoppers across all income levels spend less and make fewer trips to stores.

A holiday study published by Nielsen this week found that 85 percent of households expected to spend the same or less this year than last year.

People are also continuing to nest in their homes. This Christmas, sales of necessities and items associated with at-home entertainment are expected to fare best: cookware and other kitchen sundries, consumer electronics, DVDs, alcohol, tobacco and bed and bath accessories. The Nielsen report said upscale retailers should consider stocking practical items because affluent households may forgo jewelry and designer bags for the likes of generators, fireplace accessories, kitchen gadgets and family games.

As has been the case throughout the recession, higher-priced categories like jewelry, sports equipment and vacations are expected to be hurt most. Industry experts said that would probably lead merchants of those items to offer compelling discounts, some of which will pop up before Thanksgiving.

Indeed, Moody’s Investors Service said in a recent research note that while clothing retailers had brought their inventory in line with weaker demand, the holiday season “may be more promotional than anticipated, as consumers have learned to delay shopping in anticipation of higher markdowns.”

Already, major big-box chains are jockeying for the discretionary dollars of consumers.

Wal-Mart said this week it would bring a $10 toy section back to all of its stores, repeating a successful strategy from last Christmas. It will offer many more toys, for a wider variety of age groups, at that price. The offers will include classic board games like Monopoly, childhood favorites like Barbie dolls and Tonka trucks, a Hot Wheels Trick Track and a Lego Bionicle Legends set. Additionally, Wal-Mart said it would match any local competitor’s advertised offer on the same toy if the price fell below $10.

On Tuesday, Kmart published a “Fab 15” toy list, highlighting a layaway program that lets consumers reserve popular items early, pay over time, then pick up their purchases before the holidays arrive.

The stores may have good reason to begin competing for consumers’ Christmas dollars before Halloween even rolls around. According to Wal-Mart’s customer research, 70 percent of consumers are planning to start their holiday toy shopping before Halloween.

Analysts closely watch discount chains because when consumers begin spending discretionary dollars after an economic downturn, they typically do so at discount and value-priced retailers first. As time goes on and the economy recovers, consumers move up to specialty retailers. Many analysts have said that if consumers spend more this holiday season at the likes of Wal-Mart and Costco, that bodes well for specialty stores come 2010 and 2011.

Mr. Russo said studies by Nielsen had found that consumers were indeed “expressing a desire to move back into the discretionary categories although — and this is really key — at moderate levels.”

In another positive sign, Ted Vaughan, a partner in the retail and consumer products practice at BDO Seidman, said, “Retailers are starting to ramp up their inventory purchasing” for next year, referring to a BDO Seidman survey of chief financial officers at major chains.

The International Council of Shopping Centers, an industry trade group, published one of the most optimistic of the holiday reports so far, forecasting a 1 percent year-over-year sales increase in November and December for stores open at least a year.

“Does the retail industry need a miracle to have positive year-over-year sales growth during the 2009 holiday season?,” the report said. “No, but should you see Kris Kringle at the Macy’s Thanksgiving Day Parade, put in a request for one anyway!”