Baby, It's Cold Inside

In the tiny hamlet of Dodgeville, Wis., Richard C. Anderson assembled several hundred telephone operators, order-takers, and packers at Lands' End Inc. headquarters for a few last words before the start of the holiday selling season. The $604 million catalog company, whose earnings plunged 49% after a disastrous inventory shortfall last Christmas, had just reported a dramatic improvement in its third-quarter earnings.

So the retailer's CEO trotted out his most inspiring pep talk, right? Not exactly. "There's a triple whammy we should keep in mind: the short selling season, the constant threat of recession, and a debt-ridden consumer," he warned, adding that over half the company's yearly profits were likely to come from sales in November, December, and January. "It's anybody's guess what this Christmas will bring."

Retailers aren't the only ones anxiously awaiting the arrival of St. Nick. Manufacturers, economists, and politicians are all looking for signs that consumers are spending again. Catalog and store sales account for nearly a quarter of gross national product, so consumer holiday spending should help indicate when the economy will perk up. The reading so far on consumer spending? "Gone south," says John J. Schultz, head of the National Retail Federation and former president of B. Altman & Co.

REASON TO FRET. That's no exaggeration. According to the Conference Board's latest monthly survey of 5,000 households, consumer confidence is approaching the lows of the early 1980s. And worried shoppers don't spend much. A poll of 450 households taken in November by Leo J. Shapiro & Associates, a Chicago market-research firm, found that 53% of consumers planned to spend less on gifts this year than last. In 1990, only 46% had said that.

Considering last year's calamitous Christmas, there's reason to fret. In 1990, holiday sales rose just 1% after inflation, according to Carl Steidtmann, chief economist for Price Waterhouse's Management Horizons unit, a retail consultancy. This year could look a little better: Steidtmann predicts that general-merchandise sales will rise 4%, including 2% inflation, in the fourth quarter. "A difficult year is an improvement over a disaster," he says.

What's different this year is that many retailers are keeping inventories lean. Child World Inc. lost $192 million in 1990 and barely escaped bankruptcy after selling a huge inventory of out-of-date toys at fire-sale prices. A new CEO, former Toys 'R' Us Inc. executive W. John Devine, isn't stockpiling this year. Others won't get the chance to learn from last year's mistakes: According to Dun & Bradstreet Corp., retail bankruptcies were up 33% in the first seven months of 1991.

The stores that are left are stalking a new breed of shopper. "We've taught the customer to buy on sale," explains Judy Jordan, a Minneapolis retail consultant. No wonder, then, that this season will be filled with special promotions.

Take Hartmarx Specialty Stores Inc. Despite a major restructuring amid deepening losses, the operator of 213 stores in 30 states produced and mailed a video Christmas catalog to 150,000 of its best customers in early November, at a cost of nearly $1 million. The 12-minute piece took nine months to produce and involved 24 actors, a mansion in the Chicago suburb of Lake Forest, and an original musical score.

BOOK VALUE. Sears, Roebuck & Co., for its part, is counting on a small, homesick alien to draw shoppers into its 868 stores. On Thanksgiving night, Sears will be the sole national sponsor of the network-television premiere of E. T. The next day, Sears plans to wow shoppers with ultralow prices on key items ranging from camcorders to sweaters. "We've had to pack more value into our merchandise," declares Matthew A. Howard, Sears' senior vice-president for marketing.

Some megapromotions entail considerable risk. Ed Erickson, senior book buyer for Target Stores, the discount department-store chain owned by Dayton Hudson Corp. in Minneapolis, says he bought as many Random House Children's Encyclopedias as all other booksellers combined. Erickson expects that at $29, down from a regular retail price of $60, the one-volume book will generate $1 million in additional sales for his department. But if parents don't buy, Target will be stuck: To win a favorable price, it waived the right to return extras to the publisher.

Judging by the goods that many retailers are pushing heavily, this is a good year for stay-at-homes. Nordstrom Inc.'s flagship store in downtown Seattle features street-level displays of stacks and stacks of men's cotton and flannel pajamas. Disney's Fantasia video, selling for as little as $15, has been flying off the shelves. And the castle of the Teenage Mutant Ninja Turtles' archenemy, Shredder, is on the top of many kids' wish lists.

But buying frenzies are just a relic of the 1980s. Listen to Susan D. Hester, who recently spent a snowy Saturday morning at Denver's huge Cherry Creek shopping mall. "If I want something, I can hit the sales in January," she says. "It's going to be a consumers' market." That's a common attitude. No wonder retailers think this is the season to be worried.

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