Retailers Hope for Holiday Cheer

Sales Forecast a Bit Brighter Than 2008

The one cold comfort for the retail industry this holiday season is that it's unlikely to be quite as bad as last year.

Of course, that doesn't mean it's going to be good. The most optimistic estimates put sales during the most crucial shopping season of the year at slightly above last year's levels. The industry is bracing itself by reducing inventories and touting value to cost-conscious consumers.

"You have to look in the context of where we've been," said Carl Steidtmann, chief economist for Deloitte Research, a consulting firm. "I think most retailers will be happy with that result."

The National Retail Federation, a trade group, pushed back its annual holiday forecast because the volatile economy is making it tough to predict consumer behavior. The forecast is scheduled for release Tuesday and predicts retail sales dropping 1 percent, to $437.6 billion, in November and December. Though the figure is far from the industry's 10-year average of more than 3 percent growth, it is an improvement from last year's 3.4 percent drop.

The holiday season typically accounts for as much as 40 percent of all retail sales, making it the most important time of the year for the industry. Economists also watch Christmas sales closely because consumer spending is the biggest driver of the gross domestic product, and many believe that a sustainable recovery is not possible until shoppers feel comfortable pulling out their wallets again.

The retail federation's forecast "is a good number in that it shows stabilizing in sales," NRF spokesman Scott Krugman said. "However, it also acknowledges that the recovery is not going to be consumer-led."

Shoppers have dramatically cut back their spending as the unemployment rate has reached 26-year highs. According to a survey last month by investment firm UBS and consumer behavior consultant America's Research Group, 81 percent of shoppers said debt is forcing them to shop and spend less. Government data show that the personal savings rate has risen to its highest levels in a decade.

Though that's good news for household budgets, higher savings rates mean less money for the discretionary purchases that are the lifeblood of the retail industry. The UBS-America's Research Group survey shows that 60 percent of consumers have accepted life with less and do not plan to spend more, even if the economy improves.

"I think these people are serious about cutting back," said C. Britt Beemer, chairman of America's Research Group. "Not only are we seeing fewer shoppers, we're seeing more shoppers go to stores and only buy the advertised deals."

Last year, retailers were caught off-guard by the sharp drop in spending following the collapse of investment bank Lehman Brothers and insurance giant American International Group just before the start of the holiday season. Shoppers effectively froze their bank accounts as they watched the stock market dive, taking their retirement savings with it.

The shock is only beginning to wear off. Consulting firm Retail Forward said the last holiday season marked the worst performance of the retail industry in 42 years. The firm expects this year will be the second-worst.