Holiday sales may be sluggish

Anyone counting on holiday shoppers to jolt the economy out of its doldrums may be in for a disappointment.

It’s not exactly a stocking full of coal, but the National Retail Federation is setting expectations low with its forecast for the all-important Christmas shopping season. The industry trade group said Thursday that it expects a paltry 2.8 percent increase in holiday retail sales, to $465.6 billion — far below the 5.2 percent increase retailers experienced in 2010.

With the European debt crisis, the S&P 500-stock index nearing a bear market and weak U.S. economic growth, the season could be an important factor in whether businesses pull back and tip the country into another recession. Consumer spending, after all, accounts for roughly 70 percent of the overall economy, and the holiday season traditionally produces as much as 40 percent of all retail sales.

Would-be shoppers, however, may remain on their couches this year amid sputtering job growth, higher gas and food prices and continued volatility in the stock market, said federation chief economist Jack Kleinhenz.

Still, he pointed out, “consumer confidence turned up a little bit last week. Retail sales . . . on a year-over-year basis have been growing. I don’t count the consumer out.”

There are other economic indicators that bode well for the coming season, he said, including a reduction in household debt and an increase in the use of credit cards.

Shoppers’ outlook for the holidays, despite intentions to spend less, remains better than it was coming out of the recession in 2009, according to a recent survey by the research firm Kantar Retail. Only 35 percent of the 4,004 people polled intended to spend much less this year, compared with 43 percent in 2009.

“The fact that spending intentions aren’t falling off as dramatically as consumer confidence does give us some hope the slowdown we expect for the holiday will not be as bad as the last recession,” said Frank Badillo, senior economist for Kantar Retail.

Kantar, like the National Retail Federation, expects retail sales in the fourth quarter to increase 2.8 percent. That lackluster prediction is on par with just about every forecast to trickle into the market in the past month.

The International Council of Shopping Centers, a New York-based trade group, expects a 2.2 percent gain in the last two months of the year, while ShopperTrak out of Chicago is placing bets on a 3 percent uptick in sales during that time.

Gauging consumer sentiment this early in the season, economists say, is a bit of crapshoot. Another uptick in employment like the 91,000 new hires that ADP Employer Services tracked in September could buoy confidence and encourage consumers to spend. A surge in fuel and commodity prices or unemployment could result in the opposite.

Memories of the devastating sales of 2008, when holiday revenue fell 4.4 percent, have kept retailers fairly conservative in their planning for the season.

Lindsey Buscher of Urban Chic, a women’ s apparel and accessories boutique, ordered a few more designer iPad holders and Shoshanna dresses this year, but kept a tight rein on inventory.

“We don’t over-buy anymore,” she said. “For us, the recession was a bit of a blessing in disguise because it forced us to take a step back and reevaluate how we were running the company.”

Margins for Buscher’s four stores in the Washington area were up 10 percent through the first seven months of the year, making her bullish about the holiday season, despite the uncertainty in the financial markets.

“All signs have been pointing to things are still heading in the right direction,” she said. “Our customers are ready to get out of this state of mind of being so careful with not spending.”

Echoing Buscher’s optimistic outlook, Ronnie Mervis is confident that locally based Mervis Diamond Importers will close out the year on a high note, as sales of engagement and wedding rings continued to trend upward amid recent market volatility.

Mervis, who increased inventory by 15 percent this year, expects purchases of diamond earrings, bracelets and necklaces will lead holiday sales at his four locations in the metropolitan area.

Sales of such luxury goods have grown for most of the year, and the luxury category is one of the retail sectors, including electronics and apparel, that economists anticipate will perform well this season.

But if the volatility in the stock market continues through the season, luxury consumers may retreat from the market, said C. Britt Beemer, chairman of consulting firm America’s Research Group.

He finds it telling that such a major retailer as Wal-Mart is reinstating its layaway payment plan for the holidays after a four-year hiatus.

“Wal-Mart is probably the best barometer sometimes to measure what is going on in the country,” Beemer said. “They’ve told analysts on three different occasions that they’ve noticed a 20 percent drop in sales as consumers are running out of money by the end of each month.”

Danielle Douglas-Gabriel covers the banking industry for The Washington Post.
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