Costco May Gain Holiday Sales as Shoppers Skittish

Shoppers at stores from Best Buy Co. to Gap Inc. (GPS) and Toys “R” Us Inc. all said in a recent poll that they’ll spend less this holiday season than last year. Customers plan to buy more at only one chain: Costco Wholesale Corp. (COST)

Such may be the story of the 2011 holiday shopping season, in which consumers who splurged last year focus their spending on more practical items amid persistent joblessness and choppy stock markets, said Pam Goodfellow, an analyst at Worthington, Ohio-based BIGresearch, whose consulting arm conducted the survey of 9,000 shoppers at 11 chains.

“Last year, people had a sense that it was going to get better and be a great holiday season -- this year will be more stale,” Goodfellow said in a telephone interview. “They see their neighbor’s house is still on the market or their family member is still unemployed, and that faith is gone.”

While purchases are expected to increase from last year -- the National Retail Federation forecasts a 2.8 percent gain in sales in November and December -- that spending may be targeted toward items such as Costco’s home decorations and clothing rather than pricier electronics.

About 70 percent of consumers plan to purchase apparel this holiday season, the same portion as last year, according to a survey from New York-based Brand Keys last week. Only gift cards are on more shoppers’ lists at 92 percent.

People who have avoided buying clothing and shoes for themselves will be willing to pay full price for sweaters and jeans because there are few other exciting products they plan to splurge on, said Greg Buzek, president of IHL Group, a Franklin, Tennessee-based research firm.

Fuel Prices

“There is going to be a lot of pent-up demand because people have held off for a while,” Buzek said. “People held off because of fuel prices earlier in the year, and with prices back down, people can spend more.”

Meanwhile, only half of shoppers plan to buy electronics, a 10 percentage-point decline from last year, Brand Keys said. Aside from avoiding the cost of gadgets, there aren’t many new or interesting products introduced this season to attract buyers, said Marshal Cohen, chief analyst at NPD Group.

“People have run out of wall space for flat-screen TVs, and they don’t need new DVD players,” Cohen said in a telephone interview from Port Washington, New York. “There is nothing compelling enough to make anyone want to buy these products because they already have them.”

Internet Shopping

Electronics purchases also will increasingly take place over the Internet as shoppers avoid crowds, challenging Best Buy and RadioShack Corp. (RSH), Cohen said.

The lack of interesting products extends to toys, where Let’s Rock Elmo, a singing stuffed doll aimed at toddlers, may be among the few hits this season, he said.

“Let’s Rock Elmo is virtually the only exciting product, and people won’t be rushing out to buy more of the same,” Cohen said.

The Justin Bieber Rockin’ Tour Bus, a toy vehicle with a foldout stage for the pop star’s action dolls, also may be a best-seller this year, according to the Toy Insider shopping guide.

Toys “R” Us is focusing on offering exclusive products to draw consumers cautious about the economy, Chief Executive Officer Jerry Storch said. The chain plans to open 300 pop-up stores for holiday 2011, half the previous year, and keep its seasonal workforce the same, at about 40,000 workers.

“We listened to the customer and learned that we didn’t need as many stores this year,” he said.

Slow Growth

Retailers expect slow growth this holiday season, with 36 percent of executives in a survey by CIT Group and Forbes Insights saying sales will be about the same and 38 percent predicting a slight improvement. The New York-based companies in September surveyed 100 executives at retailers with annual revenue of $25 million to $1 billion.

Their expectations match consumers’ plans, with about 70 percent of shoppers telling Brand Keys they plan to spend the same amount of money as last year and 20 percent saying they’ll spend less. Consumers expect to spend about $824 this holiday season, 2.9 percent more than last year, the researcher said.

Costco is “confident” about the holiday based on recent sales numbers and expects good sales of apparel, jewelry and home decor, said Bob Nelson, vice president of financial planning, while declining to give a specific forecast.

The company, based in Issaquah, Washington, benefits from having name-brand products, such as Skechers shoes and Sealy mattresses, at a heavy discount, he said.

“The consumer today is looking for the best deal on practical items,” Nelson said. “So we’re benefiting from that mindset.”

To contact the reporter on this story: Ashley Lutz in New York at alutz8@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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