A Mighty Short Christmas List This Year

Worried retailers are putting some holiday orders on hold

At the Port of Long Beach, Christmas usually starts in July. That's when the big retailers, from Wal-Mart Stores Inc. (WMT ) to Federated Department Stores Inc. (FD ), start to ship in thousands of containers of Asian-made merchandise that will wend its way to store shelves during the holidays. But there has been little Christmas cheer at the Southern California port, the nation's second-largest behind Los Angeles: Incoming volume in July was flat. That's not very good compared with the last several years, when the port racked up nearly double-digit gains in July, notes John Favor, the port's marketing manager. "Retailers want to wait because they are worried about the economy," he says. "But you can't wait too long."

Faced with an uncertain economy this holiday season, retailers have good reason to be wary. And they're scouring the horizon for any hints of economic strength. On July 31, they got some: The Commerce Dept. reported that personal consumption rose 0.4% in June. Buoyed in part by tax rebate checks, that was nearly double expectations.

Will that upbeat news prompt retailers to bulk up on shipments? Or will they continue to hold off, waiting for more evidence that this Christmas isn't going to be a bust? If retailers wait too long, they could wind up causing themselves more harm than good: A late surge in shipments could cause a bad distribution bottleneck in the fall.

Ultimately, if consumer spending manages to hold up, retailers could be stuck with empty shelves during the holiday shopping season. "If retailers delay and condense the shipping season, it could have a serious impact," says Peter Mettra, an assistant vice-president at Pacer Stacktrain Service, a unit of Walnut Creek (Calif.)-based Pacer International Inc. that operates rail cars that transport merchandise.

So far this year, it's clear that many retailers are looking for ways to delay taking hold of inventories as long as possible. Many of the nation's largest chains have changed their ordering patterns, notes Dick Metzler, CEO of APL Logistics Ltd., an Oakland (Calif.)-based company that handles shipping from Asian factory floors for big U.S. retailers such as Kmart, Target, and Wal-Mart. Rather than place big orders, many have lined up smaller ones with the option to back off later orders should consumer demand not materialize. "It gives more flexibility to order later and meet in-store dates," says Metzler.

But flexibility is the key, because even though retailers are putting off shipments now, they may very well be scurrying to speed up deliveries a month or two down the line. This is about the time every year when retailers, who bring in nearly 80% of holiday items from Asia, begin shipping orders. But this year, most say they're planning for flat to low-single-digit sales gains for the fourth quarter, so analysts suspect they're limiting their orders. "Department stores and discounters are being quite cautious," says analyst Linda T. Kristiansen of UBS Warburg.

DERAILED. But the supply chain is easy to upset, shipping executives say. In 1999, many containers waited on the docks in Asia because of strong Christmas demand in the U.S. that stretched shipping capacity. "If you squeeze time out, you start to change the equation," says an executive for a big transloading firm.

For now, it's a waiting game for retailers. As containers full of stuffed bears, electric trains, video games, scarves, and mittens sit on Asian wharves collecting dust, retailing execs are holed up in their offices scouring store sales and other data for signs of economic life. "If buyers don't bring anything in, they aren't in the ball game," says Thomas Kessery, vice-president for Midwest sales at "K" Line America Inc., an ocean freight company that carries merchandise for retailers like Target (TGT ) and Sears, Roebuck and Co. (S ) That's one good reason why they'd better not wait too long.

By Robert Berner in Chicago, with Gerry Khermouch in New York

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