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Skimpy sales under the tree

The credit crunch and the housing slump will hurt profits, forecasters say.

By MARK ALBRIGHT, Times Staff Writer
Published September 20, 2007

As Tampa Bay stores roll out their Christmas trim-a-tree shops for another season this month, gray clouds are gathering for the holidays.

In fact, the National Retail Federation will announce today that it has cut back its forecast to a modest 4 percent sales gain for the two-month holiday season. That would be the weakest performance since 2002, when consumers spent a meager 1.3 percent more than they did on holiday buying in the aftermath of the 2001 recession. And some experts think even the revised forecast is optimistic.

"I don't see a recession, but the weakness we've experienced in consumer spending is spreading upward to more income groups and to more types of merchandise," said Frank Badillo, senior economist for TNS Retail Forward, a Columbus, Ohio, consulting firm that forecasts a 3.3 percent gain in the fourth quarter for general merchandise sales.

Blame the erosion of housing prices, rising foreclosure rates among the overstretched and a credit crunch. It's a growing convergence with an epicenter in Florida.

For many merchants the last two months of the year are the difference between a great year and a mediocre one. Toy stores and jewelers get half of their annual sales then. It's when department stores earn up to half of their annual profits. Consumer spending accounts for two-thirds of gross domestic product, so the holidays are a signpost for the whole economy.

Adjusted for inflation, a 4 percent sales gain would reflect little more than keeping up with population growth. So many retailers will use the lower forecast to trim orders for holiday goods.

So far, apparel, home furnishings, big-ticket and home-improvement sales have stagnated during the housing slump.

Now most types of general merchandise will be hit. An exception: upscale stores whose wealthier customers feel less squeezed.

The Federal Reserve's move Tuesday to lower interest rates will help in time. But economists who track retail sales expect consumers to get more skittish.

"Consumers will be forced to be more prudent with their holiday spending," said Rosalind Wells, chief economist for the retail industry's biggest trade group."In trimming her forecast by almost a percentage point, Wells wiped out more than $4-billion from her earlier holiday spending forecast.

Meantime, another measure of spending sentiment, the RBC Capital Markets Consumer Confidence Index, which gauges financial, job and investment expectations, plunged from 89 in August to 71 in September.

The survey points to a "slowdown in consumer spending that could affect the holiday season, particularly with baby boomers, the traditional drivers of economic growth, being so pessimistic about the immediate economic future," said Larry Miller, an RBC analyst.

Consumer electronics stores that survived last year's price slashing in the high-definition, flat-screen TV glut say they are better prepared this time. But the RBC survey questions buyers vs. tire-kickers.

RBC found 7 percent of shoppers plan to make a $500 or more consumer electronics buy in the next three months. About 51 percent are trying to hold off at least a year.

"This season TV prices will fall even faster than they did last year," Badillo said.

Mark Albright can be reached at albright@sptimes.com or (727) 893-8252.

[Last modified September 19, 2007, 23:07:02]