By  on September 19, 2005

NEW YORK — Consumer spending during the holidays stands to be adversely affected by high energy prices and, to a certain degree, by Hurricane Katrina, analysts said. And while consumption during November and December will remain moderately steady, it may not live up to last year's sales levels.

If they keep climbing, energy prices could be the most serious concern surrounding the strength of holiday, a recent report from retail consultancy Customer Growth Partners LLC found. The effects will be seen more for lower-income consumers than for those in higher-income brackets because, percentage wise, money spent on gas eats more into total income levels for lower-income shoppers, Craig Johnson, president of CGP, said in the report.

"So we [will be] seeing a modest impact on Wal-Mart and dollar store sales, but not a showstopper, especially since we're concurrently seeing a retail 'cascade' effect, where some middle- and upper-income households are shopping more frequently at the Wal-Marts, Dollar Generals and Costcos of the world," Johnson said.

Michael Niemira, director of research at the International Council of Shopping Centers, also expressed concern over how much gas prices will hurt the consumer's ability to spend during the holidays. Gas prices, he said, are a far more pressing concern than the effects of Katrina because home heating oil bills could be as much as 50 percent higher than last year due to a projected colder-than-normal winter this year.

"In the last survey we did a week-and-a-half ago, it has increased to 59 percent of consumers who said that they had scaled back spending [due to gas prices] a little or a lot. So it's a bad situation, and we've only seen the first wave of the energy impact," Niemira said.

In addition, a preliminary holiday sales forecast from Ernst & Young LLP found that holiday sales will be affected by Hurricane Katrina because the storm has helped push gasoline prices over $3 a gallon in most regions of the U.S.

Jay McIntosh, Ernst & Young's director of retail and consumer products research for the Americas, predicted that, if discounters become concerned that consumers are spending less due to high energy costs, they could be promotional early in the holiday season, or even start promoting holiday in October. That would negatively affect top-line growth for the November-December sales period.Meanwhile, what's a holiday forecast without mentioning Wal-Mart Stores Inc.? Niemira said he's concerned over recent comments from the company's chief executive officer, Lee Scott. The ceo is forecasting aggressive pricing, which could have an overreaching impact on retail pricing patterns as well as total sales during the season. "The nation's largest retailer will be cutting prices, and maybe the message to the industry is: Will you follow or not?" said Niemira.

Yet, while Niemira is predicting that same-store sales during the holiday season will increase 3.5 percent — above the 2.3 percent seen in holiday 2004 — he noted that one reason for the increase probably will be because of an easy comparison with 2004 sales levels.

Another potential impact on holiday spending, according to the Ernst & Young report, which will be released this Tuesday, could be that high-income consumers will shift some of their holiday spending to donate to Hurricane Katrina relief efforts.

According to a survey of 45 consumers conducted for WWD on Friday by consultancy Capgemini, 44.4 percent of those surveyed plan to donate a portion of what they would spend on holiday purchases to the Katrina efforts, though more than half of the respondents said the hurricane would not affect total holiday spending levels at all.

The CGP report backs up this data. The report found that consumer spending tends to bounce back in the months after a major disaster. Johnson said that retail spending (excluding automobile and food service sales) has increased an average of 5.6 percent year-over-year in the first full month following the four largest U.S. disasters since 1992. By the first Christmas following an event, the report said holiday sales had climbed an average of 6.2 percent.

The Capgemini survey also found that 42.2 percent of respondents plan to spend the same amount on holiday purchases this year as last year, with just over 30 percent spending less. Of the respondents who plan to spend less, 60 percent do not feel gas prices or home heating oil bills will be to blame.

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