If the mood heading into Black Friday seems grim, it is. Recent surveys and analysis suggests spending, at best, will be on par with last year.
Black Friday, the official kickoff of the holiday shopping season, arrives after a month of fourth-quarter cautionary tales from Macy's Inc., Coach Inc., Polo Ralph Lauren Corp., Talbots Inc., J.C. Penney Co. Inc. and Kohl's Corp..
Inflationary energy costs, slumping home sales and sagging consumer confidence is creating high anxiety for retailers who are slashing prices, revising earnings estimates and forecasting softer holiday sales. Wall Street is also nervous as banks take steep write-downs from the subprime market collapse, and investors fret over the negative impact of macroeconomic factors on the retail sector. In fact, the S&P Retail Index is down about 20 percent since the beginning of the year.
Consumers have become more discerning about what they buy and where they shop. October same-store sales, for example, were lackluster for most. Retailers blamed unseasonable weather and kicked into gear planned promotions of 30 to 60 percent off. When the cold weather did arrive, the markdown machine was still humming, which analysts said was due to nervousness over a lack of traffic — especially at the mall.
Over the past few holiday seasons, apparel has lost market share to other segments, most notably electronics, such as iPods and digital cameras. Analysts said there are no "It" items this holiday, and the aspirational shopper — those who buy luxury goods at opening price points — is said to be pulling back from key brands and retailers.
The good news is that real wage growth will sustain spending, according to one top consulting firm, while apparel and gift cards are top choices for women shoppers this year. And online shopping is expected to be the best so far. And, although there is no "It" or must-have item this year, dresses did well during the fall and the category is expected to be a top performer this holiday.
An exclusive WWD/Global Strategy Group survey of 2,000 women completed last month found that 62 percent of the respondents plan to spend the same on gifts this year as they did last year. Twenty-two percent of the total respondents were classified as luxury shoppers, and 73 percent of this demographic said they would spend the same as last year.Topping respondents' shopping gift lists were apparel, accessories, shoes and handbags as well as gift cards. The survey also showed great promise for online sales, revealing that 46 percent of the luxury respondents planned to do their holiday shopping online. Luxury respondents consisted of women with a household income in excess of $250,000.
The survey also revealed another startling fact: More than 50 percent of the respondents said they buy a majority of their apparel at a discount.
Meanwhile, depending on the source of information, holiday sales forecasts are ranging from a gain of 3 to 5 percent.
FTI Consulting's 2007 Retail Report forecasts a 3.6 percent increase in holiday season sales. FTI defines the season as running from November through January. In 2006, FTI forecast a 4.8 percent gain. Actual growth came in at 5 percent.
Kevin Regan, a retail analyst at FTI, said the key factor driving FTI's projected increase for this year "is the continuing acceleration of real wage income." He said this will "almost single-handedly help save the prospects of an otherwise disappointing 2007 holiday season."
The FTI report found that real wage growth "has gone largely unnoticed this year, yet is on its strongest pace since the late Nineties, and historically this bodes well for spending, as income growth is highly correlated with changes in consumer spending."
But real wage income is the "only variable in the FTI forecast to have improved over last year," said the report. "Housing weakness, a cooling economy and rising energy prices are collectively weighing on the minds of consumers, who are decidedly downbeat going into the holiday season, according to most sentiment surveys. FTI retail experts believe that wage income growth should ultimately overcome these other negatives, resulting in a 2007 holiday season sales forecast that is tepid, if not disappointing, compared to recent years."
Regan said the report found that consumers are "changing their purchasing basket, increasing their buying of basics, like consumables and some apparel, while deferring purchases of bigger ticket items."
Regan also said the escalating price of energy is an "overrated variable in the consumer spending equation." He explained that the supposed causal relationship between higher energy prices and weaker spending "is spouted regularly in the business media whenever it speaks of high gas prices, but the statistical evidence supporting such an inverse relationship is not existent. Consumers haven't let rising energy prices seriously crimp their spending since the energy crisis of 1981."Bain & Co. said in a separate report that it expects holiday sales will trail last year's 4.8 percent growth. Despite weaker same-store sales, overall October retail spending growth came in at 3.4 percent — on par with last year's numbers.
Warehouse clubs and luxury retailers are outpacing the market, with about 7 percent same-store sales growth.
The moral is that consumers are still spending, and apparel is no exception, said Christopher G. Fox, senior manager, Bain & Co.
Archstone Consulting, which describes itself as a management consultancy and brand innovation firm, forecasts holiday retail sales to show an increase of 3 percent this year, "barely keeping pace with the projected inflation rate of 2.7 percent," the firm said in its report, adding, "This reflects the slowest growth rate in retail holiday sales over the last five years."
"Retailers will see limited growth in holiday spending, resulting in a 'season of discounts' that will reward savvy shoppers," said Dave Sievers, retail and consumer products practice leader at Archstone.
Sievers said aggressive markdowns "will drive shoppers to the stores. It won't allow retailers to overcome the adverse economic factors that will affect sales, including the downturn in housing and a tightening credit market."
Customer Growth Partners president and analyst Craig Johnson expects holiday sales to rise 5 percent this year, which will be "held down only by a stubborn housing slump." Johnson added that electronics again will play an important role this holiday.
"For anyone still doubting that this will be the 'Tech Christmas,' just watch Grandma getting her Garmin or find out that the hottest game with the nursing home walker set is not Scrabble, but Nintendo Wii bowling," Johnson said. "And on Fifth Avenue, whether you're a twentysomething stopping by H&M to save on fast fashion or a hedge funder shopping at LV at the 57th Street corner, the one place they all converge is another block up at Apple, where they're standing 30-deep at the checkout queue — midday on a Tuesday afternoon, before the holiday rush."
Still, others are not so optimistic. NPD Group Inc.'s chief industry analyst, Marshal Cohen, said, "We're likely to see Black Friday showing signs of 'going gray.'""Between all the sales that have preceded this year's Black Friday as well as the sluggish start to the fall and holiday shopping season, I think we are looking at less than record-breaking sales for the Thanksgiving weekend," Cohen said. "Now couple that with all the news about a sluggish economy, rising gas prices, escalating fuel costs for heating a home and the slowdown in the real estate market....That affects the consumer's psyche. And that makes for a challenging set of circumstances for retailers to drive sales growth over Thanksgiving weekend."
A survey released this week by Accenture found that "more than four in 10 U.S. consumers said they plan to shop on the day after Thanksgiving and will not let gas prices affect their spending."
The firm said 49 percent of respondents "said that gas prices will not affect their holiday spending, but nearly the same amount [45 percent] said they will make fewer shopping trips this year due to gas prices."
Whether gas impacts spending and holiday sales or not, one thing is clear: Online sales and gift cards are becoming more prevalent.
According to comScore Networks, online sales last month rose 19 percent, bringing year-to-date growth to 21 percent. EMarketer predicts 18.5 percent growth in holiday online sales over last year, which is in line with other major online sales forecasts for the season.
Shoppers plan to spend almost a quarter of their holiday budgets on gift cards this year, according to an American Express Gift Card survey. This is up from 18 percent last year and 13 percent in 2005.
"Gift-givers want to get it right the first time and choose gifts that recipients will enjoy using as they wish," said Alpesh Chokshi, president, American Express Travelers Cheques and Prepaid Services, in a statement. "Gift cards come with unspoken permission for the recipients to splurge on themselves, and that is making gift cards more appealing, acceptable and personal."
On average, shoppers will buy six gift cards.
About 61 percent of consumers said they plan to give gift cards this holiday, said Michael Niemira, chief economist and director of research, International Council of Shopping Centers."This bodes well for retailers, as it extends holiday spending well into the New Year," he said.
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