NEW YORK — Holiday 2005 will be challenging for retailers.

Sales could be on “thin ice” because of rising fuel costs, a lack of must-have fashion items, inventory buildups and aggressive promotions, Merrill Lynch specialty retail analyst Mark A. Friedman said Wednesday.

“We haven’t found the new item, or that next trend for the holiday season,” Friedman said during the Retail Marketing Society’s Christmas forecast at the Fashion Institute of Technology.

He sees apparel and accessory stores increasing 3.8 percent in total sales compared with last year, same-store sales growing 2.9 percent and earnings increasing 8.3 percent.

Raising concerns about heating bills, Friedman said the higher costs could result in families making fewer trips to malls. Strip centers, which tend to be more convenient, may benefit, he added.

Among the retailers that could fare well, Friedman cited Ross Stores and TJX, because of their strip center concentration; Children’s Place, due to product improvements, fewer promotions and its takeover of 300 Disney stores, and Tiffany & Co., Chico’s and Coach, which all have momentum.

He also said self-purchasing will shift further into the post-holiday period, and 2004 post-Christmas sales were strong, making for tough comparisons.

There were positives: an extra shopping day, since Christmas falls on a Sunday, providing a potentially big Saturday, and velours, tracksuits, ponchos and hoodies — among last year’s hot items — will still be available.

In her outlook on department and general merchandise stores, Stacy Turnof, Merrill’s director of retail research, predicted softness among lower- and moderate-price merchants, and called dollar stores “at risk.” But high-fashion stores should do well, relatively, followed by department stores. “We think department stores have good fashion, the right mix and affordable luxury….Moderate retailers are doing a better job at knocking off [trends] and have better private label penetration.”

Carl Steidtmann, chief economist for Deloitte Touche, said developments over the last few months indicate a more challenging Christmas; a lot of the benefits of rebuilding in hurricane-ravaged areas are not expected to be felt until next year. But he added, “The holiday season is clearly becoming less important to consumers. That may reflect demographic shifts as the population ages.”

This story first appeared in the October 27, 2005 issue of WWD. Subscribe Today.

On the bright side for retail, he said consumers have a lot of cash and the labor market is growing.

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