Holiday Sales Growth Predicted to Decline

A leading retail trade group predicted yesterday that holiday sales growth will lag behind last year's in an early forecast that set a tepid tone for the most important shopping season of the year.

The National Retail Federation estimated that sales during November and December will grow 5 percent, to $457.4 billion, compared with a 6.1 percent increase last year. Average growth over the past 10 years was 4.6 percent, the group said.

"In this case, 2005 was stronger than many people's expectation," said Ellen Davis, NRF spokeswoman. "It's going to be difficult for many retailers to grow from that this year."

She characterized the forecast as "cautious." Last year, in an unusual move, the group adjusted its growth estimates midway through the season, raising the projection to 6 percent from 5 percent, as gasoline prices fell and consumer spending remained strong.

But don't look for a similar surge this year.

C. Britt Beemer, chairman of America's Research Group Ltd., a consumer-behavior research firm, said he thought the NRF's forecast was too optimistic. He estimated growth of roughly 3 percent.

"If it were 5 percent, retailers would be ecstatic," he said. "You could almost take what they say and cut it in half, and you'd be on target."

Davis said the cooling housing market is partly to blame for the anticipated spending slowdown. Consumers are feeling a little less flush, she said.

"Housing prices have a psychological impact on homeowners," she said. "There may be a perception that you're not as well off as you were."

The holiday shopping season accounts for about 20 percent of total retail sales, making it a make-or-break period for many companies. Christmas merchandise is already showing up in stores, though retailers are not expected to begin heavy promotions until November.

Several industry experts whose forecasts are seen as important bellwethers for the season, such as the International Council of Shopping Centers and consumer research firm NPD Group, are not scheduled to release their predictions until next month. But other early birds offered similarly lukewarm expectations.

Market research firm Retail Forward estimated sales growth of 5.5 percent in the fourth quarter compared with the previous year. The company pegged retail sales growth in the fourth quarter last year at 7.2 percent. Frank Badillo, Retail Forward senior economist, warned that shoppers could clamp down even more early next year.

Retail Forward predicted that department stores, squeezed between specialty retailers and big-box stores, would continue to weigh down sales. But discounters, particularly one-stop-shopping super-centers, would become even more attractive to customers if gasoline prices creep up again.

"The mass channels . . . should remain among the growth leaders," Badillo said.

Beemer said no must-have products have emerged to excite shoppers. That leaves retailers reliant on promotions to get customers in their stores.

"What I see happening is that every year consumers are getting much more bargain-driven," he said. "I think we're going to see a Christmas shopping season where consumers are going to demand huge savings."

Last year, Wal-Mart Stores Inc. led the way with blockbuster discounts the day after Thanksgiving, offering plasma TVs for $997 and laptops for $398. The NRF said retailers would use similar hardball tactics again this year.

"Retailers need to differentiate," Davis said. "The best way to do that this year is value. . . . Retailers will be fighting very hard with their competitors for those shoppers."