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Holiday retail forecast cheery

While gains aren't expected to match last year's 6.1 percent rise, an above-average season is predicted.

By ASSOCIATED PRESS
Published September 19, 2006

NEW YORK - Holiday sales are expected to rise 5 percent this year, less than the 6.1 percent increase of the year-ago period, as consumers face still-high energy costs, rising interest rates and a cooling housing market, the National Retail Federation said Tuesday.

The world's largest retail trade association estimates that total retail sales for the combined November and December period should reach $457.4-billion, compared with $435.6-billion in the year-ago period. The figures include business from grocery stores, health and personal care stores, home improvement stores, office-supply stores and florists. Total sales, however, exclude business from auto dealers, gas stations and restaurants.

"Consumers have faced a number of economic challenges this year and have taken them in stride," said Rosalind Wells, chief economist of the National Retail Federation. "Although sales will not be as robust as last year, retailers can still expect above-average holiday sales growth."

Shoppers have remained resilient throughout the year even amid rising gasoline costs, though the nation's merchants are experiencing a slight slowdown starting this summer. From the January through June period, retailers averaged almost 4.1 percent gain in sales at stores opened at least a year, known as same-store sales, according to the International Council of Shopping Centers-UBS tally. Same-store sales are considered the best indicator of a retailer's health.

In July, the nation's merchants posted a 3.9 percent gain in same-store sales and a revised 3.8 percent increase in same-store sales in August, which was fueled by a solid back-to-school shopping season and a strong drugstore business.

But strong August sales figures from teen retailers such as American Eagle Outfitters Inc. and Abercrombie & Fitch Co. appeared to mask some signs of restraint in the monthly results at apparel merchants that cater to adults. That has left the outlook for the holiday season unclear.

J.C. Penney Co., which usually reports robust sales gains, reported disappointing August results, citing weak sales in big-ticket items like furniture. The exceptions have been luxury stores such as Nieman Marcus Group Inc., whose shoppers continue to splurge on status handbags and apparel.

Michael Niemira, chief economist at the International Council of Shopping Centers, expects same-store sales to be up 3 percent for the November-December period. That compares with 3.5 percent in the year-ago period.

In the toy world, sellers are counting on a number of electronic toys such as Webcams and new versions of digital music players to excite children. Today, Mattel Inc.'s Fisher-Price unveils at Toys R Us and other major toy sellers its Elmo T.M.X., an enhanced interactive version that until now has only been seen by a small group of toy executives. Such stealth marketing could help create some much-needed buzz, helping to jump-start the holiday season.

Overall, the good news is that retreating gasoline prices could help offer some relief this holiday season to discounters such as Wal-Mart Stores Inc., whose core low-income consumers have pulled back on spending.

But worries remain about the deteriorating housing market, and how it will affect middle-income shoppers. Meanwhile, according to the latest government report, the job market bounced back in August, easing concerns that the slowing economy isn't in danger of fizzling out.

"The lower gasoline prices creates a halo effect for the holiday season," said Janet Hoffman, managing partner of the North American retail division of Accenture, a consulting firm.

"The thing that concerns me overall is the sluggish housing market and the ripple effect" on categories such as home improvement.

She said the big question is whether consumers will be diverting their purchases to other areas such as electronics and apparel this holiday season.

[Last modified September 18, 2006, 23:17:00]