Retailing: The Bipolar Holiday Sales Season

Just in time for the holidays, industry analysts are engaging in their annual ritual of trying to predict how much people will spend and what they buy this season. Amid the uncertainty about the U.S. economy, predictions have been as scattered as ornaments on a tree. AlixPartners, based in Southfield, Mich., says sales will be flat compared with last year. Customer Growth Partners of New Canaan, Conn., projects a 4.5 percent gain.

On this, at least, there's consensus: Luxury retailers are likely to hear silver bells at the register this season. Mass-market retailers, though, will be able to dream only of bottom lines just like the ones they used to know. That tracks the divergent paths in the broader economy between high-income Americans, who have held onto their jobs and reduced their debt over the last two grim years, and middle-class workers, who are anxious about job security and their tight household budgets. "The luxury consumer will be the stellar spender this holiday," says Michael P. Niemira, chief economist at the International Council of Shopping Centers. The J.C. Penney's (JCP) and Wal-Mart's (WMT) of the world will have to coax their customers to spend. "Our core customer's right in the middle, economically, so they're probably the most constrained," says J.C. Penney's chief marketing officer, Michael J. Boylson.

In an online survey conducted last month by BIGresearch, a Worthington (Ohio) research firm, respondents with household incomes of less than $50,000 said they'd spend an average of $490.33 this season, down 1.2 percent from last year. Those with household incomes of $50,000 or more said they'd spend 2.9 percent more than in 2009, an average of $942.12. Those results are in sync with ICSC forecasts that sales at luxury stores open more than a year will surge as much as 8 percent in November and December over a year ago, compared with a 1.5 percent to 2.5 percent gain at discounters.

Coach (COH), the largest U.S. maker of luxury leather goods, has increased its inventory by 36 percent, including its line of Sophia satchels that range from $298 to $1,000. Nordstrom (JWN) is selling a $1,165 D&G sweater jacket for men and Gucci watches priced up to $1,345. "I just got out of a meeting about doing more in the designer business," says Peter E. Nordstrom, the store's merchandising president. "We think there is a lot more room for us to continue to layer on more. We're bullish on it."

The Italian jeweler Pomellato is broadening its assortment of hardware at the so-called low end ($2,000) and the high end ($100,000-plus). The company has been previewing its wares at Bergdorf Goodman. On display: a $51,790 bracelet encrusted with brown diamonds. For those with slightly less expensive tastes, the company offers the Nudo lineup of 10 rose gold rings, which retail for $1,990 apiece. "It's an alternative to a very nice [hand]bag," says Managing Director Andrea Petochi.

Leslie Dickstein, a Realtor who lives in Manhattan, plans to spend $7,000 to $10,000 on gifts for her fiancé, family, friends, and business contacts, up from $5,000 to $6,000 last year and $2,500 the year before. A rebounding equity market has lifted her spirits. "The stock market does affect my mood, because it affects everyone around me," says Dickstein, whose clients hail largely from Wall Street. She's in the market for luxury accessories and apparel—Hermès, Gucci, Portolano—and wine.

The goodies glisten less at mass-market merchants, which have been cutting prices early and often. Last month, Best Buy (BBY) offered a free phone with two-year contracts, and it plans to keep the deals coming. The world's largest seller of consumer gadgetry is spending more in marketing this season than last. Family Dollar Stores (FDO) has been promoting its lineup of $5 toys. In early November, Mary Kirkman was scouting a Family Dollar store in Greensboro, N.C. Once she gets paid this month, she plans to buy a doll and tea set for her two-year-old granddaughter. "That's all I can afford," says Kirkman, who works in a tool factory and hasn't had a raise in three years. This holiday, Kirkman plans to spend about $230 on her five grandkids, about the same as last year and a quarter of what she spent four years ago on laptops and gadgets.

The bottom line: Luxury retailers are expected to thrive, while mass-market chains struggle, in what's likely to be an uneven holiday shopping season.

With Lauren Coleman-Lochner and Andrew Roberts

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