No Jingle Bells on These Registers
As early as August, retailers worried that it would be tough to get consumers in a festive mood for holiday shopping. But with the terrorist attacks casting a pall over the economy, many of them are bracing for a truly blue Christmas.
Indeed, despite the surprisingly strong October retail sales numbers released by the Commerce Dept. on Nov. 14--which showed sales surging 7.1% in October over September's depressed levels--many analysts remain worried. Most of the gains came as Detroit's zero-interest financing drove car sales up 26.4%; without autos, retail sales rose just 1%.
The upshot is that while shoppers may still be willing to open their wallets for great, once-in-a-lifetime deals, that doesn't mean they'll be hanging out at the mall. Carl E. Steidtmann, chief economist for Deloitte Research, predicts retail sales for the November- to-January stretch will be flat compared with the same period last year. Only 9% of shoppers surveyed by Deloitte plan to boost spending this Christmas; 30% will spend less. That could spell trouble for retailers, who make up to half their profits during the holidays. "This will be one of the worst fourth quarters [for retailers] in the postwar period," says Steidtmann.
DISCOUNT POWER. Still, the pain won't be evenly spread. Jupiter Media Metrix Inc. predicts that online retailers, who start from a much smaller base, could see holiday orders rise 11% over last year, to $11.9 billion. Discounters such as Wal-Mart Stores (WMT ), Target (TGT ), and Kohl's (KSS ) will likely perform best among traditional retailers.
Department stores, on the other hand, could be big losers. Federated Department Stores Inc. (FD ), for one, has already warned that fourth-quarter sales at stores open a year or more will be down 7% to 10%. Others feeling the heat include jewelers and high-end apparel retailers. Talbots Inc. (TLB ), which saw same-store sales drop 12.5% in October, is playing down party dresses in favor of basics such as sweaters. Meanwhile, jeweler Zale Corp. (ZLC ) is hiring fewer holiday clerks and managing inventories more tightly.
With consumers sticking close to the hearth, purveyors of home furnishings, books, kitchen accessories, and toys hope to cash in on the public's sudden "nesting" instinct. Sales of candles, wine glasses, and dinnerware have been boosting results at Pier 1 Imports Inc. (PIR ), which saw same-store sales climb 4% during the month of October.
When consumers do splurge, it takes a sale to get them to open their wallets. Melinda Helveston, a Birmingham (Ala.) homemaker, didn't feel like shopping after September 11. But during a trip to Atlanta's tony Lenox Square Mall, she could not pass up a pair of Cole Haan shoes that were marked down at Rich's, a unit of Federated.
Of course, parents will still spend on their kids: Thanks to the release of Microsoft Corp.'s $299 Xbox video game and Nintendo Co.'s GameCube console, Toys `R' Us Inc. (TOY ) should do well. "This is going to be a peak year for video games," says Chief Executive John H. Eyler Jr. In this dismal season, however, that isn't saying much.
By Dean Foust in Atlanta, with Louise Lee in San Mateo, Calif.